Oil Prices Slip as Global Economies Face Bleak Outlook

On Thursday, oil prices saw a modest decline in the face of disappointing economic indicators from major economies worldwide.

Investors are holding their breath for U.S. Federal Reserve Chair Jerome Powell’s speech scheduled for Friday, hoping for insights into future interest rate trends.

Brent crude oil, against which Nigerian oil is priced, edged down by 19 cents or 0.2% to settle at $83.02 per barrel. Simultaneously, U.S. West Texas Intermediate crude saw a drop of 24 cents, or 0.3% to $78.65 per barrel.

Economies across the globe found themselves in a precarious situation as manufacturing data from various purchasing managers’ index (PMI) surveys released on Wednesday painted a grim picture.

The consensus among analysts was that these figures raised concerns about future demand.

Japan reported a third consecutive month of shrinking factory activity in August. In the Eurozone, business activity declined more than anticipated, with Germany taking a particularly hard hit.

The British economy appeared poised to shrink in the current quarter, placing it at risk of falling into a recession.

The situation was not much brighter in the United States, where business activity in August was hovering near stagnation, with growth levels not seen since February.

Meanwhile, as Federal Reserve officials and policymakers from the European Central Bank, the Bank of England, and the Bank of Japan gather in Jackson Hole, there is growing talk of maintaining higher interest rates for a prolonged period, despite a dip in inflationary pressures.

The downward pressure on oil prices can largely be attributed to concerns about potential declines in demand and an increase in oil supply, exacerbated by the disappointing PMI readings as stated by Sugandha Sachdeva, Executive Director and Chief Strategist at Acme Investment Advisors.

On the supply side, Iran’s crude oil output is projected to reach 3.4 million barrels per day (bpd) by the end of September, as reported by the country’s oil minister, despite ongoing U.S. sanctions.

U.S. officials are also crafting a proposal that could ease sanctions on Venezuela’s oil sector, potentially allowing more companies and countries to import its crude oil.

However, this proposal is contingent on the South American nation making strides toward a free and fair presidential election, according to sources familiar with the matter.

Sachdeva anticipates that oil prices will continue to experience downward pressure, especially given the significant resistance point at $83 per barrel for WTI crude.

She suggests that while prices may witness occasional rebounds, they are likely to test lower levels, potentially around $74 per barrel, in the near term.

In terms of U.S. crude inventories, they saw a significant decline of 6.1 million barrels during the week ending August 18, bringing the total to 433.5 million barrels.

This surpassed analysts’ expectations, as a Reuters poll had projected a more modest drop of 2.8 million barrels.

Analysts at ANZ Research pointed out that the reduction in crude stocks is a global trend, with much of it occurring in China. State-owned refiners in China have reached record-high operating rates this month, indicating healthy demand for oil.

However, the rise in U.S. gasoline stocks in the past week suggests that fuel demand has been weaker than initially expected.