Oil prices slipped lower in volatile trade Tuesday, continuing to retreat after recent sharp losses as fears that slowing economic growth will dent global demand.overshadowed concerns of an all-out conflict in the Middle East.
At 08:20 ET (12:20 GMT), Brent oil futures dropped 0.6% to $75.82 a barrel, while West Texas Intermediate crude futures fell 0.7% to $72.44 a barrel.
Oil prices has been supported by concerns over an escalation in the Israel-Hamas war, especially after Iran and Hamas vowed retaliation over the killing of a Hamas leader in Tehran.
On the Lebanon front, Israel continued its offensive against Hezbollah, also keeping the threat of retaliation from the military group high. Israel claimed it had killed a key Hezbollah leader last week.
The prospect of an Israel-Hamas ceasefire appeared increasingly distant, and the prospect of an escalation in the conflict saw markets attach a bigger risk premium to crude.
Traders were watching for any supply disruptions arising from the conflict, which could herald tighter oil markets. But so far, the Israel-Hamas war, as well as a conflict with Iran, has caused minimal disruptions in global oil production.
However, oil prices were nursing steep losses through the past month, having slumped to seven-month lows on concerns over slowing growth and demand.
The weak U.S. labor readings, Friday's nonfarm payrolls in particular, were preceded by dismal readings from China, especially on the country’s manufacturing sector. The weak Chinese data added to concerns over slowing demand in the world’s biggest oil importer.
Goldman Sachs flags that the sharp decline in oil prices over the past week has coincided with similar drops in equity prices and bond yields. This movement suggests that macroeconomic fears, rather than oil market fundamentals, are the primary drivers behind the selloff.
Despite these concerns, Goldman Sachs maintains confidence that the $75 floor for Brent oil prices will hold, driven by several key factors, including resilient oil demand, limited recession risk, and potential recovery in speculative positioning.
The analysts note that oil demand remains robust in Western economies and solid in India. US gasoline demand, European oil product consumption, and jet fuel use in OECD countries show above-trend growth.
In fact, US oil demand reached an all-time high in May, up 2% year-over-year, and Indian oil demand in July remained strong, rising 4% year-over-year according to state-owned refiners.
Goldman sees room for speculative positioning in oil markets to recover. Current speculative positioning is at very low levels, providing potential for a rebound as growth sentiment improves.
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