Crude oil prices tumbled to their lowest level since January 2024 on Friday, driven by a combination of factors including weak US jobs data, concerns about Chinese economic growth, and continued uncertainty in the Middle East.
Brent crude futures closed down £2.17, or 3.41%, at £61.41 per barrel, while US West Texas Intermediate (WTI) crude futures settled £2.24 lower, or 3.66%, at £58.81 per barrel. Both benchmarks fell by over £2 per barrel at their session lows. On the Multi Commodity Exchange (MCX), crude oil futures plummeted nearly 5%, closing 4.75% lower at â¹6,130 per barrel.
Recession Fears and Sluggish Global Growth Weigh on Demand
The US economy added fewer jobs than expected in July, according to official data, triggering concerns about a potential recession in the world's largest economy. This fuelled further losses on Wall Street, with the tech-heavy Nasdaq Composite Index crashing 3% on Friday, marking its worst day in two years.
Weak economic data from China, the world's largest oil importer, and surveys revealing sluggish manufacturing activity across Asia, Europe, and the US added to the gloomy outlook. The downturn in Chinese manufacturing activity also dampened oil prices, raising concerns about future demand growth. June data showed a decline in Chinese imports and refinery activity compared to the previous year.
OPEC Output Rises Amid Uncertainties
Data from LSEG Oil Research revealed that Asia's crude imports fell to their lowest level in two years during July, driven by weak demand in China and India. A Reuters survey indicated that OPEC oil output rose in July, with a rebound in Saudi Arabian supply and small increases elsewhere offsetting the impact of ongoing voluntary supply cuts by other OPEC members.
The Organization of the Petroleum Exporting Countries (OPEC) produced 26.70 million barrels per day (bpd) last month, up 100,000 bpd from June, according to the survey. OPEC's recent meeting saw the group maintain its current output policy, including a plan to gradually unwind a layer of production cuts starting in October.
Middle East Tensions Remain a Factor
Oil investors remain focused on the Middle East, where Hezbollah, a group backed by Iran, declared that its conflict with Israel has entered a new phase. However, analysts noted no significant disruption of oil supplies from the region despite heightened geopolitical tensions following the killing of senior leaders of Hamas and Hezbollah.
Outlook for Oil Prices
Analysts believe that the recent downturn in oil prices is driven by a combination of factors, including recession fears in the US, weak global demand, and increased supply. However, they also acknowledge that ongoing tensions in the Middle East and the potential for a US Federal Reserve rate cut provide some support at lower price levels.
"The contraction in US manufacturing PMI for the fourth consecutive month in July and increased jobless claims sparked recession fears. It hurt demand prospects, causing prices to drop sharply... OPEC+ tentatively plans to revive halted production next quarter, with approximately 540,000 barrels per day expected to be added in the fourth quarter," said Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.
"The weak US economic data heightened demand concerns, offsetting supply worries. The downward trajectory of the Chinese economy does not support the demand for crude oil. However, hopes of a US Fed rate cut and ongoing tensions in the Middle East are providing some support for oil prices at lower levels. We expect crude oil prices to remain volatile," stated Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
