Weak economic data out of China and the United States spurred concerns about a potential global recession
Oil prices started the week on the back foot, extending losses to fresh February lows below $92 a barrel on Tuesday when the futures lost another 3%. Brent crude bounced slightly on Wednesday, holding slightly above $93 in early deals, with recovery momentum looks too modest and indecisive to bet on a sustained reversal in the coming days
The market is pressured by worries about the prospect of a new nuclear deal between the West and Iran – a move which could eventually lift sanctions on Tehran and add around 1 million barrels per day of oil to the global market within six to nine months.
Adding to a more cautious tone among oil traders, weak economic data out of China and the United States spurred concerns about a potential global recession. Earlier in the week, China revealed weaker-than-expected industrial production and retail sales figures while in the US, housing starts data disappointed.
Elsewhere, the American Petroleum Institute said overnight that US crude stocks fell by about 450,000 barrels for the week ended August 12. Gasoline inventories fell by about 4.5 million barrels, while distillate stockpiles declined by about 760,000 barrels. As such, a larger-than-expected drop in inventories helped somehow ease the selling pressure surrounding oil prices.
Now, the market focus shifts to the official industry report from the EIA and the FOMC meeting minutes due later today. Should the Fed deliver a less hawkish tone towards hiking rates amid the slowing inflation, risky assets including oil may receive a boost through a weaker dollar. However, the overall bearish picture for the oil market remains intact, and fresh multi-month lows could be ahead.
Technically, a failure to regain the $95 mark in the near term would pave the way towards the $90 figure in the coming days, especially as the US dollar remains resilient while risk trends remain unstable due to persisting recession concerns.