Crude oil prices have dropped for the second consecutive trading day, driven by disappointing economic data from both China and the US. West Texas Intermediate (WTI) futures fell below $70 per barrel for the first time since December 2023, while Brent futures slumped to under $74 per barrel, a level not seen in nine months. Since peaking on August 27, both benchmarks have plunged by over 10%.
The decline in oil prices has been compounded by a risk-averse market sentiment following a tech selloff led by Nvidia, which caused global markets to tumble. Investors have moved away from risky assets as recession fears grow, with the CBOE Volatility Index, often referred to as the market’s fear gauge, spiking above 20, its highest in a month.
In late August, oil prices surged due to rising geopolitical tensions between Iran and Israel and disruptions in Libyan oil production. However, concerns about a broader regional conflict have lessened, and expectations of a resolution to Libya’s issues may restore its oil output.
Economic worries have intensified as recent US data revealed a weaker-than-expected Manufacturing Purchasing Manager Index (PMI) and a drop in job openings to their lowest level since January 2021. These factors have raised the likelihood of a more significant rate cut by the Federal Reserve next month, causing a temporary reversal of the yield curve inversion on US government bonds.
China, the world’s largest oil importer, also reported disappointing Manufacturing PMI and Caixin Services PMI data, indicating ongoing economic challenges.
In response to the falling oil prices, OPEC+ is considering postponing its planned production increase for October. The group had previously agreed to raise production by 180,000 barrels per day as part of a gradual unwind of output cuts. Despite ongoing production cuts, which could support the market, prices have not yet rebounded due to prevailing risk-averse sentiment.
OPEC+ had extended its production cuts of 3.66 million barrels per day until the end of 2025, with additional voluntary cuts of 2.2 million barrels per day continuing until September this year. The organization, responsible for over 37% of the world’s oil supply, has been reducing output since 2022, achieving a total cut of 5.86 million barrels per day, representing 5.7% of global demand.
Credit: euronews (Text Excluding Headline)
