Oil prices rallied and traded with great volatility yesterday as driven by strong Chinese PMI data, better-than-expected US jobless claims and escalated tensions over Iran. The front-month contract for WTI crude oil rose above 110 for the first time since May 2011 before ending the day at 108.84, up +1.65%, while the equivalent Brent crude contract jumped to 128.4 before settling at 125.39, +0.19%.
China's manufacturing index climbed to 51 in February from 50.5 in the prior month. The market had anticipated a modest rise to 50.8. The final data compiled by HSBC and Markit also improved to 49.6 in February from flash reading of 48.8. Improvements shown in the 2 readings signaled further that the change of hard-landing is lowered. In the US, while ISM index missed expectations, initial jobless claims also came in worse than expected. Initial claims stayed unchanged at 351K in the week ended February 25, higher than consensus of a fall to 349K. Yet, the market was probably buoyed by the decline of the 4-week moving average, by 6K, to 354K, the lowest reading since March 15, 2008.
The rally in oil prices was mainly boosted by a report that a pipeline in Saudi Arabia exploded. The rumor was immediately by Saudi with the spokesman saying that no oil facility in the region has been sabotaged. Despite the denial, oil prices jumped, signaling the high sensitivity of investors to supply disruption. Meanwhile, Israel stated that it would conduct its first test of the Arrow 3, a system developed in cooperation with the United States to shoot down ballistic missiles in space, 'in the near future', ensuring ongoing tensions against Iran.
On the dataflow, Japan reported that unemployment rate stayed unchanged at 4.6% in January, compared with consensus of a dip to 4.5%. Core CPI slipped -0.1% y/y in January while the leading Tokyo CPI showed a contract of -0.3% during the month.