Oil down on weak economic data, US Federal Reserve chief’s speech in spotlight
AUTHOR: Reuters | PUBLISHED: August 24, 2023
An aerial view shows tugboats helping a crude oil tanker to berth at an oil terminal, off Waidiao Island in Zhoushan, Zhejiang province, China July 18, 2022 | Credit | Reuters
Oil prices eased in early trade on Thursday amid disappointing economic data from key economies and as investors await a speech by U.S. Federal Reserve Chair Jerome Powell on Friday for cues on interest rates.
Brent crude fell 26 cents, or 0.3%, to $82.95 a barrel by 0359 GMT, while U.S. West Texas Intermediate crude dropped 30 cents, or 0.4%, to $78.59 a barrel.
Manufacturing data from a host of purchasing managers’ index (PMI) surveys on Wednesday painted a grim picture of the health of economies across the globe, raising demand concerns, analysts said.
Japan reported shrinking factory activity for a third straight month in August. Euro zone business activity also declined more than expected, particularly in Germany. Britain’s economy looked set to shrink in the current quarter, in danger of falling into recession.
U.S. business activity approached the stagnation point in August, with growth at its weakest since February.
Meanwhile, Federal Reserve officials and policymakers from the European Central Bank, the Bank of England and the Bank of Japan head to Jackson Hole where higher-for-longer interest rate talk may dominate despite a dip in inflationary pressures.
The downward pressure on oil prices is largely due to concerns surrounding a potential decrease in demand and rising supply of oil on top of downbeat PMI readings, said Sugandha Sachdeva, executive director and chief strategist at Acme Investment Advisors.
On the supply side, Iran’s crude oil output will reach 3.4 million barrels per day (bpd) by the end of September, the country’s oil minister was quoted as saying by state media, even though U.S. sanctions remain in place.
U.S. officials are also drafting a proposal that would ease sanctions on Venezuela’s oil sector, allowing more companies and countries to import its crude oil, if the South American nation moves toward a free and fair presidential election, according to five people with knowledge of the plans.
“Given the significant resistance point at $83 per barrel for WTI crude, we anticipate that oil prices will continue to trade with a negative bias,” Sachdeva said.
“It is likely that prices may witness some rebound, but seem on course to test lower levels of around $74 per barrel in the near term,” she added.
U.S. crude inventories (USOILC=ECI) fell by 6.1 million barrels in the week to Aug. 18 to 433.5 million barrels, compared with analysts’ expectations in a Reuters poll for a 2.8 million-barrel drop.
“This (decline in stocks) mirrors a move across the world … Much of the reduction has occurred in China, where operating rates from state-owned refiners have hit a record high this month. This suggests healthy demand,” analysts at ANZ Research said in a note.
However, a climb in U.S. gasoline stocks last week indicated fuel demand has been weaker than expected.