Oil Prices Fall as US Economic Data Disappoints
In a turn of events, oil prices took a hit on Thursday as investors grew wary of lower demand amid weaker-than-expected US employment and business data. This development suggests that the economy of the world’s top oil consumer could be cooling down, as reported by Reuters.
Price Movement
Brent crude futures dipped by 60 cents, or 0.69 percent, to $86.74 a barrel, while US West Texas Intermediate crude futures saw a decline of 63 cents, or 0.75 percent, landing at $83.25 by 09:51 a.m. Saudi time. The holiday in the US for Independence Day led to reduced trading activity.
Market Analysis
Citi analysts stated that while geopolitical tensions and weather conditions pose bullish risks, the physical market strength is expected to soften. They noted that the demand might decrease post-summer due to hurricane risks affecting September cargoes.
Impact on US-Europe Oil Trade
US crude shipments to Europe hit a two-year low in June as European buyers opted for cheaper regional and West African oil. However, there could be a slight rebound in July and August volumes.
Profit-Taking and Future Outlook
Analysts attribute the drop in oil prices to traders cashing in on recent gains. Despite the decline, oil futures in both the US and Europe are heading towards a fourth consecutive weekly increase. The weaker demand expectations were further emphasized by US economic data reflecting a rise in unemployment benefits applications and a decrease in private payrolls.
Federal Reserve’s Potential Rate Cut
The weaker economic indicators could lead the US Federal Reserve to consider cutting rates, which would support the oil market by boosting demand. The likelihood of a rate cut in September has risen to 74 percent, prompting markets to anticipate easing for the rest of the year.
Market Response
A potential lower interest rate environment could limit the strength of the dollar in the short term, benefiting the current bullish trend of WTI crude. The Energy Information Administration reported that US crude and fuel stockpiles fell more than anticipated last week.