NEW YORK, Aug 27 (Reuters) – Oil prices fell by around 2% on Tuesday due to concerns that slower economic growth in the U.S. and China might reduce energy demand, especially after a recent surge of over 7% in prices over the past three days.
Brent futures decreased by $1.88, or 2.3%, settling at $79.55 a barrel. U.S. West Texas Intermediate (WTI) crude dropped $1.89, or 2.4%, ending at $75.53.
“Today’s price decline, though notable, is still within the bounds of a normal correction following a significant $6-per-barrel increase over the last three days,” analysts at energy advisory firm Ritterbusch and Associates commented. Technical traders observed that both contracts pulled back after failing to surpass resistance levels around the 200-day moving averages on Monday.
With U.S. gasoline futures still near a six-month low, the 321-crack spread, which reflects refining profit margins, remained near its lowest level since February 2021 for a second consecutive day.
“If refiners are not making profits on gasoline and distillates, they will buy less crude oil for production, leading to increased storage of unsold barrels,” noted Bob Yawger, director of energy futures at Mizuho.
In the U.S., consumer confidence rose to a six-month high in August, but growing concerns about the labor market emerged after the unemployment rate jumped to a near three-year high of 4.3% last month. This increase in unemployment has raised expectations that the U.S. Federal Reserve might cut interest rates next month, which could stimulate economic growth and oil demand.
UBS Global Wealth Management has increased the likelihood of a U.S. recession to 25%, up from 20% previously, citing weak data from the July labor report. Additionally, Germany’s economy contracted in the second quarter.
Goldman Sachs has reduced its average 2025 Brent price forecast by $5 per barrel, adjusting its range to $70-$85 a barrel and its forecast to $77 per barrel from $82, due to slower demand in China.
Economic concerns in the U.S. and China have overshadowed bullish news from Libya and the Middle East that might reduce supplies. Prices had recently surged due to the potential shutdown of Libyan oil fields, which could impact the OPEC member’s roughly 1.2 million-barrel-per-day output, and tensions in the Middle East following recent counterattacks between Israel and the Iran-backed Hezbollah group in Lebanon.
“The apprehension in the Middle East seems to have eased after Israel thwarted a large-scale Hezbollah missile attack. Notably, Iran did not intervene to support Hezbollah,” Yawger at Mizuho remarked.
U.S. Oil Inventories
Weekly U.S. oil storage data is expected from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday. The data is anticipated to show that energy firms drew crude from U.S. storage for the eighth time in nine weeks. Analysts project a decline of 2.3 million barrels for the week ending Aug. 23, which would be smaller than last year’s decrease of 10.6 million barrels and the average decrease of 6.3 million barrels over the past five years (2019-2023).