Oil prices experienced a slight decline in early trading on Thursday due to concerns over a potential economic slowdown in the United States. These concerns overshadowed worries about the risk of escalating conflict in the Middle East, leading to a decrease in demand for crude oil.
Brent crude futures witnessed a drop of 9 cents, or 0.1%, to $86.95 a barrel, while U.S. West Texas Intermediate crude futures fell 7 cents, or 0.1%, to $82.74 a barrel. Although both benchmarks experienced losses of less than 1% on Wednesday, the lingering concerns about the U.S. economy continue to weigh on oil market sentiment.
Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd., emphasized that although tensions between Iran and Israel have eased, Israel’s attacks on Gaza are expected to intensify, raising the risk of conflict spreading to neighboring countries and providing some support to oil prices.
On the other hand, Tazawa noted that the delay in U.S. interest rate cuts has sparked worries about the U.S. economy and demand for crude oil, putting downward pressure on oil market sentiment.
The Israeli military’s intense bombardment of the northern Gaza strip marked the second day of a fierce assault, shattering weeks of relative calm. Israel also announced its intention to proceed with plans for a full-scale attack on Rafah in the south.
Meanwhile, the U.S. economy displayed signs of cooling in April as business activity slowed to a four-month low. The S&P Global flash Composite PMI Output Index, which monitors the manufacturing and services sectors, declined to 50.9 this month from 52.1 in March, indicating a slowdown in economic growth.
The U.S. Federal Reserve has expressed concern over a series of stronger-than-anticipated inflation and employment data, suggesting that the fight to bring inflation down to the central bank’s 2% target has stalled or even reversed. This week’s release of U.S. gross domestic product and March personal consumption expenditure data will be closely watched for clues about the dollar’s value and any potential shifts in U.S. interest rates.
Data from the Energy Information Administration (EIA) on Wednesday revealed an unexpected decline in U.S. crude oil inventories last week, driven by a surge in exports. Gasoline stockpiles also decreased, though less than anticipated.
Crude stocks fell by 6.4 million barrels to 453.6 million barrels in the week ending April 19, according to the EIA, surprising analysts who had predicted an increase of 825,000 barrels.
Tazawa of Fujitomi noted that the data provided a temporary boost to oil prices, but its impact proved to be short-lived.
