These trends are also encouraging the oil bulls. After the OPEC and other major oil producers extended their output cuts through March 2018 this outgoing week, the projected shortages of crude oil in Asia have produced the expectations of higher oil prices in the near-term. The rebound in Chinese manufacturing further supports these expectations as mainland China's manufacturing is one of the key drivers behind Asia's energy market.
Chinese manufacturing enterprises earned 14 percent more in April than a year ago, according to an official report released on Saturday. Albeit the Chinese industrial sector still finds itself amidst the ongoing slowdown, the robust gains in profits are an optimistic sign for the global producers of raw materials and energy.
Mainland China's manufacturing activity, however, slowed in April, according to a separate report from the National Bureau of Statistics, with the manufacturing Purchasing Managers' Index (PMI) having dropped to its six-month lowest at 51.2 in April from the previous month's almost five-year high of 51.8. PMI readings above 50 indicate expansion.
"Slowing growth of China's industrial profits is reasonable considering the fast growth experienced earlier this year," He Ping of the National Bureau of Statistics said. The reasons behind the slowdown in April's manufacturing activity are the contraction in manufacturing goods' prices and therefore factory gate deflationary pressures, the decline in raw material prices, rendering the finished product less expensive, and the slowing earnings in steel, chemical, and automotive industries.
The growth in earnings, however, still remains impressive, whilst the overall manufacturing activity remains sustainable, rendering the Asian energy market more attractive in terms of profits. Oil prices have gained a boost on the news, even though mainland China's manufacturing could have performed better.
The mounting debt issues and slow progress on a structural economic reform are still stirring some concern in the market. This week international credit rating agency Moody's Investors Service downgraded mainland China's credit ratings for the first time in almost three decades, citing the destructive effects of debt accumulation to economic growth.
Still, after the 6.9-percent GDP expansion in 1Q17, mainland China is confidently heading for a 6.5-percent full-year growth.
"We are now less pessimistic about short-term growth than we were just two months ago," analysts of the Tokyo-based financial enterprise Nomura Holdings wrote. Nomura expects the Chinese economy to expand by 6.7 percent this year and 6.2 percent in 2018.
In line with the deleveraging efforts that the Chinese government has commenced undertaking recently, such a pace of growth boosts the near-term outlook for oil and other raw material prices. Yet, a stronger global growth and significant further improvements in consumer sentiment in the advanced economies are necessary to push the outlook for oil price to above $70/bbl.