Oil futures experienced extended losses on Monday amid a volatile session, primarily driven by a stock market selloff fueled by fears of a U.S. recession. However, the declines were tempered by concerns over potential disruptions to crude supplies due to spreading conflict in the Middle East.
Brent crude futures fell by $1.07, or 1.4%, to $75.74 a barrel by 1128 GMT, marking prices at their lowest since January. Similarly, U.S. West Texas Intermediate crude dropped $1.18, or 1.6%, to $72.34.
The downturn in oil prices mirrored declines in European stock markets, with significant losses seen in Germany’s DAX, France’s CAC 40, Britain’s FTSE, and Spain’s IBEX 35, all of which dropped by more than 2%.
The selloff was primarily driven by concerns of a U.S. recession, exacerbated by weak July payrolls data, which heightened worries about Chinese demand, particularly slumping diesel consumption in China.
Despite these losses, oil has underperformed many major stock exchanges in 2024. Since the beginning of the year, the Nasdaq 100 has risen 11%, and the FTSE 3%, while Brent crude has decreased by 0.3%.
Further pressure on oil prices came from the OPEC+ decision to phase out voluntary output cuts from October, indicating an increase in supplies later in the year. A Reuters survey also showed an increase in OPEC oil output in July despite the production cuts.
Geopolitical risks in the Middle East provided a cap on oil losses. Continued fighting in Gaza and potential escalation in the region, following the killings of Hamas’s leader and a top Hezbollah commander, kept the market wary. The risk of a wider regional war, while considered small, remains a significant factor.
Investors are also looking ahead to U.S. services data to gauge the health of the world’s largest economy, which could influence the Federal Reserve’s interest rate decisions.
