Oil futures extended losses in a volatile session on Monday as fears of a recession in top oil consumer the United States offset supply worries stemming from mounting tensions in the Middle East, the world’s largest oil producing region.
Share markets also tumbled across Asia as US recession worries sent investors rushing from risk assets while wagering that rapid fire rate cuts will be needed to rescue growth.
Brent crude futures dropped 78 cents, or 1 per cent, to $76.03 a barrel by 0652 GMT, while US West Texas Intermediate crude futures were at $72.65 a barrel, down 87 cents, or 1.2 per cent.
Brent and WTI tumbled more than 3 per cent on Friday, with both contracts marking their fourth straight week of losses – the biggest losing streaks since November.
US recession fears, stemming from Friday’s weak July payrolls report, only “adds to Chinese demand concerns that have been lingering in the oil market for some time”, ING analysts led by Warren Patterson said in a note.
Slumping diesel consumption in China, the world’s biggest contributor to oil demand growth, is weighing on oil prices.
Oil also came under pressure after OPEC+ stuck to its plan to phase out voluntary production cuts from October, which means supplies will rise later this year, analyst say.
A Reuters survey showed on Friday that OPEC oil output rose in July despite production cuts by the group.
However, geopolitical risks in the Middle East limited losses for oil. Fighting in Gaza continued on Sunday, the day after a round of talks in Cairo ended without result.
Israel and the United States are bracing for a serious escalation in the region after Iran and its allies Hamas and Hezbollah pledged to retaliate against Israel for the killings of Hamas’ leader Ismail Haniyeh and Fuad Shukr, a top military commander from Lebanese armed group Hezbollah last week.
“The risk of a wider regional war, while I still think is small, can’t be ignored,” Sydney-based IG market analyst Tony Sycamore said. “There are some significant left and right tail risks at this point.”
Investors are watching for US services data, which slumped in June, to gauge the health of the world’s largest economy, Sycamore said.
“Another fall tonight and it supports the idea the Fed is behind the curve,” he said, referring to the US central bank which has been delaying interest rate cuts due to sticky inflation.
