Oil futures took another hit on Monday, weighed down by fears of a looming U.S. recession, despite ongoing worries about supply disruptions in the turbulent Middle East.
Asian markets echoed the turmoil, with shares plummeting as investors fled risk assets. The selloff was driven by concerns that the U.S. might need aggressive rate cuts to jumpstart economic growth.
By 0819 GMT, Brent crude futures had fallen 53 cents (0.7%) to $76.28 per barrel, while U.S. West Texas Intermediate (WTI) crude futures dropped 57 cents (0.6%) to $72.95. This follows a rough Friday, where both benchmarks lost over 3%, marking their fourth consecutive week of declines — the longest streak since November.
“The weak July payrolls report out of the U.S. only heightens concerns about Chinese demand that have been nagging the oil market,” noted ING analysts led by Warren Patterson.
China’s sluggish diesel consumption, pivotal to global oil demand growth, continues to pressure prices. Additionally, the OPEC+ alliance’s decision to phase out voluntary output cuts by October suggests a potential supply increase later in the year, compounding market anxieties.
Despite the production cuts, OPEC’s oil output rose in July, according to a Reuters survey, further unsettling the market.
Yet, geopolitical tensions in the Middle East provided a floor for the losses. Conflict in Gaza persisted, following failed ceasefire talks in Cairo. The situation has heightened after Iran and its allies, Hamas and Hezbollah, vowed retribution for recent high-profile killings by Israel.
“The risk of a wider regional war, though still unlikely, can’t be discounted,” said Tony Sycamore, a business analyst at IG in Sydney.
Investors are now keenly awaiting U.S. services data to gauge the health of the economy. Sycamore added, “A further decline tonight would support the notion that the Fed is lagging on rate cuts.”
The intricate dance of oil prices continues, balancing economic signals from the West with geopolitical tremors from the East.
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