Oil prices fell on Friday, closing at their lowest levels since January, after data showed U.S. job growth slowed more than expected in July, and Chinese economic data added to pressure on prices.
However, market volatility is expected to increase as tensions in the Middle East escalate.
Brent crude futures fell 3.41% to settle at $76.81 a barrel, while U.S. West Texas Intermediate crude futures fell 3.66% to $73.52.
Both crudes fell by more than $3 per barrel during the trading session.
U.S. job growth slowed more than expected in July, and the unemployment rate rose to 4.3%, pointing to a possible recession.
Economic data from China (the largest oil importer) and a survey showed weak manufacturing activity last month in the United States, Europe and Asia, raising the risk of a weak global economic recovery, which affects oil consumption.
A slowdown in manufacturing activity in China also contributed to the decline in prices, as it exacerbated concerns about demand growth after June data showed imports and refinery activity fell compared to the previous year.
Data from the London Stock Exchange Group’s oil research division showed Asia’s crude oil imports fell to their lowest level in two years in July due to weak demand in China and India.
A meeting of OPEC+ ministers on Thursday left current oil production policy unchanged, including the alliance’s intention to gradually roll back part of the production cuts starting in October.
Middle East Tensions
Oil investors are watching developments in the Middle East, where Lebanon’s Hezbollah said its conflict with Israel had entered a new phase.
Market volatility is expected to increase as investors factor in the potential for higher oil prices on the back of tensions in the Middle East and slowing global economic growth.
The research firm “BCA” raised its subjective probability of a major shock to oil supplies to 37%, and confirmed the possibility of a Republican victory in the upcoming US elections to 60%.
Reuters quoted a note from the company saying, “Investors should tactically hold energy stocks and favor oil producers in the Americas rather than the Middle East.”
Confrontations between Israel and Hezbollah are escalating, and the situation has worsened further following the assassination of the head of the political bureau of the Islamic Resistance Movement (Hamas), Ismail Haniyeh, in an airstrike that targeted him in Tehran a few days ago, as Iran accused Israel and vowed revenge.
The United States also launched preemptive strikes in Iraq to protect its forces, indicating a broader escalation in tensions.
Investors are now closely watching global oil markets, expecting a short-term rise in prices.
These fluctuations are expected to continue until Iran and Hezbollah fulfill their promise to take revenge on Israel, after which the extent of the damage can be assessed, according to the research company.
The company also notes that current economic forecasts support these fluctuations, with weak global demand, a slowing US economy, a lack of significant economic stimulus in China, and Europe on the brink of recession.
However, the risk of oil supply shocks is expected to rise after the US election regardless of the outcome, with the firm’s strategists saying: “Biden is in the twilight of his term and will need to cement his legacy, which could include disciplining Iran for expanding its nuclear program and attacking Israel and international shipping.”
According to Reuters, in addition to oil fluctuations, escalating tensions in the Middle East may affect the markets, and this situation – along with the restrictions imposed by Russia on energy production and exports – may lead to increased inflation.
