Oil prices slide as economic woes compete with geopolitical risks
Oil markets have eased in today’s trading with investors awaiting further price signals, with geopolitical risk and economic turbulence raising concerns over demand as well as supply.
Both major benchmarks faced downward pressure after surging in early-week trading following Hamas’s attack on Israel, which raised concerns over a production crunch if Iran entered the conflict, triggering potential sanctions on supplies.
Brent Crude is down 1.12 per cent, priced at $86.67 per barrel, while WTI Crude has dropped 1.64 per cent to $84.56 per barrel – having slumped more than three per cent in this afternoon’s trading.
Edward Moya, senior analyst at Oanda, argues that oil market rallies have lost momentum “after a mountain of geopolitical risk to start the trading week didn’t yield any real changes in crude output and transit”.
“The only thing that is becoming clear for energy traders is that the road for the global growth recovery is getting rockier. The US consumer is weakening, Germany might be headed for a deeper recession, and on fears that China’s economic slump could be widening. Most of the economic data on the consumer and earnings announcements point to a much weaker US consumer,” he said.
Moya feared Germany’s economy was facing too many headwinds with the country’s government expecting a 0.4 per cent contraction in the economy due to persistently high inflation.
He also expected China’s stimulus packages would not be enough to revive economic data after disappointing travel and spending data from the Golden Week holiday – hampering oil demand.
There was the further possibility that risks of a global energy crisis “could trigger a severe recession” – which would cause demand to slump.
However, any drops in prices would have a floor due to the general uncertainty.
“Downward pressure on oil prices however should be limited given all the geopolitical risks that are on the table. WTI crude should see buyers emerge ahead of the $84 level,” Moya explained.
OPEC and its allies including Russia, known OPEC+, has propped up prices this year through swingeing supply cuts, representing over five million barrels per day and more than five per cent of global markets.
Earlier today, Russian president Vladimir Putin confirmed Russian cuts to supplies will continue into new year, at the start of Russian energy week – in line with OPEC+ pledges.
Looking ahead, investors will be looking for clues in the US Federal Reserve’s September policy meeting minutes later today amid speculation over future interest rate decisions.