Crude prices slumped following weak economic data from the US and China, which dampened demand outlooks. Risk-averse sentiment continued to dominate global markets.
Crude oil prices fell for the second consecutive trading day amid weak economic data from both China and the US this week.
The WTI futures price dropped 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.
Both benchmark oil futures have plunged by more than 10% since their recent highs on 27 August.
Risk-aversion sentiment has also contributed to the downward pressure on the oil market, as the Nvidia-led tech selloff caused global markets to tumble on Tuesday.
Investors fled risky assets amid rising recession fears, with the CBOE Volatility Index, known as the market’s fear gauge, spiking above 20 – the highest level in a month.
In late August, oil prices surged due to escalating military conflict between Iran and Israel, alongside production disruptions in Libya, which also fuelled the upsurge.
However, concerns of a wider regional war have eased as recession fears overshadowed geopolitical tensions, and a potential resolution to Libya’s dispute is expected to restore its oil output.
Rising fears of a recession
Several disappointing data releases from the US have sparked concerns about deteriorating economic conditions and a weakening oil demand outlook.
The world’s largest economy reported a weaker-than-expected Manufacturing Purchasing Manager Index (PMI), indicating that factory activity contracted for the fourth consecutive month in August.
On Wednesday, the JOLTS job openings data also revealed that the number of available jobs fell to its lowest level since January 2021.
The worsening economic data has significantly increased the likelihood of a deeper rate cut by the Federal Reserve next month, causing the yield on 2-year and 10-year US government bonds to briefly reverse their inversion for the second time since 2022.
Shorter-term government bond yields are more sensitive to imminent interest rate movements.
Historically, an economic recession tends to occur when the spread between the two benchmark US government bond yields returns to positive territory after an inversion.
Furthermore, China, the world’s largest oil importer, reported softer-than-expected Manufacturing PMI over the weekend, indicating that factory production remained in contraction for the third straight month in August.
China’s Caixin Services PMI, released on Wednesday, also came in lower than expected, suggesting the country’s economic recovery continues to falter.
OPEC+ to delay output increase
OPEC+ may delay its plan to increase production in October amid plunging oil prices, according to a report by Reuters.
The organisation had previously agreed to raise production by 180,000 barrels per day as part of its plan to gradually unwind output cuts.
Ongoing production cuts could provide some support to the weakened crude market, although the news has not immediately lifted prices because of the prevailing risk-averse sentiment.
In June, OPEC and its allies agreed to extend 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 organisation, which supplies over 37% of the world’s total oil, has been reducing output since 2022, leading to a total cut of 5.86 million barrels per day, representing 5.7% of global demand.