China, Not Supply, Holds Key to Oil's Next Move

Oil prices have fallen by about 10 dollars a barrel since mid-April, a decline of some 20 percent that qualifies as a bear market. The technicals for oil prices are bearish, showing a trend of lower highs and lower lows, and prices well below critical moving averages. But oil producers and analysts are looking at the wrong fundamental data to explain what triggered the move lower -- and what will continue to drive oil prices in the near term.

The most important piece of data to watch for oil prices over the next few weeks won’t be the Baker Hughes rig count, the weekly U.S. Department of Energy inventories or even the June U.S. employment report. It will be the Chinese Caixin manufacturing PMI, set to be released late Sunday evening New York time, that will determine the cadence for oil prices over the next month. China is the world's second-largest consumer of oil and one of the largest sources of additional, marginal global oil demand. China has been the largest net importer of petroleum since 2014, when it surpassed the U.S.