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Oil prices settle lower as US growth jitters offset Middle East tensions

Published 01/08/2024, 04:24
Updated 01/08/2024, 19:54
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Investing.com-- Oil prices settled lower Thursday, giving up geopolitical-infused gains amid concerns about a slowing U.S. economic growth denting crude demand. 

extending the previous session's sharp rebound on raised Middle East following the killing of a Hamas leader in Iran, while a group of top producers meet to discuss output levels.

At 14:30 ET (18:30 GMT), Brent oil futures fell 1.7% to $79.82 a barrel, while West Texas Intermediate crude futures rose 1.7% to $76.62 a barrel. 

Weaker U.S. economic data take center stage

A duo of economic reports showing a larger-than-expected rise in initial jobless claims and and a further deterioration in U.S. manufacturing into contraction territory 

Initial jobless claims increased to 249,000 for the week ended in Jul. 27, higher than expected, while the ISM manufacturing index for July came in at 46.8, below the 48.2 forecast.

"The 16-month streak of sub-50 readings that extended from November 2022 through March 2024 was the longest streak of contraction since August 2000-January 2002 (18 months), notably exceeding the decline surrounding the Great Financial Crisis," Jefferies said in a note. 

Worries about a downturn in the U.S. economy, stoked fears about demand offsetting the recent geopolitical risk premium priced into oil prices amid rising Middle East tensions.    

Israel-Hamas fears in focus after Haniyeh killing

The risk premium in crude increased recently amid concerns over retaliation by Hamas against Israel for the killing of its leader Ismail Haniyeh in Tehran on Wednesday. 

Israel made no claim on responsibility for the attack, but it was widely assumed that Jerusalem had carried out the strike.

The killing ramped up concerns over a bigger war in the Middle East, potentially disrupting oil supply from the region, especially with Hamas’ potential retaliation and heightened tensions with Iran, given that the attack happened in its capital. 

Israel continued its offensive in Gaza, and also traded missile strikes with Iran-backed Lebanese group Hezbollah this week.

OPEC+ committee set to meet, few changes expected 

The Joint Ministerial Monitoring Committee of the OPEC+ is set to hold an online meeting on Thursday.

Media reports coming before the meeting flagged no changes to the cartel’s production, despite a recent rout in oil prices that took them to near two-month lows.

But top producers Saudi Arabia and Russia are expected to further downplay plans to begin scaling back production cuts. 

China concerns linger

Sentiment on oil prices was also soured by persistent concerns over an economic recovery in top importer China, especially after a raft of weak purchasing managers index readings this week.

Caixin PMI data showed an unexpected contraction in China’s manufacturing sector, coming in line with a government PMI reading from Wednesday.

The readings ramped up calls for more stimulus measures from Beijing, who has so far provided few actual details on plans to support the economy.

(Peter Nurse, Ambar Warrick contributed to this item.)

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