Oil prices faced a third consecutive session of decline as sluggish economic data from Europe cast shadows on energy demand prospects. Brent crude futures dropped by 2% to settle at $88.07 a barrel, while U.S. West Texas Intermediate crude futures fell 2.1% to close at $83.74 a barrel.
Unexpectedly, Eurozone business activity took a downturn this month, raising concerns that the region might slip into a recession. German readings even hinted at a recession underway in their country. In the UK, businesses reported yet another monthly decline in activity, underlining the recession risks ahead of the Bank of England’s upcoming interest rate decision.
Mizuho analyst Robert Yawger commented, “There is definitely a dialogue about the global economy being worse this week than it was last week.” Yawger also noted that top bankers and financial experts in Saudi Arabia were discussing the economy at the “Davos in the Desert” event.
In contrast, U.S. data offered a glimmer of hope as business output in October ticked higher, signaling a recovery in manufacturing after a five-month contraction. The relative strength of the U.S. economy had the effect of strengthening the dollar, making dollar-denominated oil more expensive for holders of other currencies.
John Kilduff, a partner at New York-based Again Capital, remarked, “As much as this market has been worried about the war in the Middle East and efforts from Saudi Arabia to tighten supply, demand has been a major headwind for a while now.”
However, the American Petroleum Institute’s weekly storage report contradicted some of these concerns, showing significant declines in crude oil and fuel inventories, indicating robust demand in the United States. An initial Reuters poll had suggested an increase in crude oil stocks. Official storage figures from the U.S. Energy Information Administration were eagerly awaited.
Both Brent and U.S. crude benchmarks experienced a brief rebound in low-volume, post-settlement trading following the API report. However, they were still down around 2% by 4:50 p.m. EDT.
Meanwhile, the release of hostages from Gaza and intensified diplomatic efforts to contain the conflict between Israel and Hamas have removed some of the risk premiums that had pushed Brent prices to their highest in a month.
In a related development, the International Energy Agency made a noteworthy prediction, expecting fossil fuel demand to peak by 2030 based on governments’ current policies.
Source: Reuters
