West Texas Intermediate (WTI) inched higher to near $76.50 per barrel in Friday’s Asian trading, with the price of crude oil finding support from supply risks arising from heightened geopolitical tensions in the Middle East, despite ongoing global demand concerns.
Geopolitical Tensions and Supply Risks
Markets are closely watching Iran’s reaction to the assassination of Hamas leader Ismail Haniyeh. According to the New York Times, Haniyeh was killed in Tehran after attending the inauguration of Iran’s new president. Both Iranian officials and Hamas have attributed the attack to Israel. This development has added a layer of complexity to the already volatile oil market, as any escalation could further disrupt supply chains.
Weak PMI Data and Demand Concerns
Weak Purchasing Managers Index (PMI) data from both the U.S. and China are raising concerns about oil demand. The US ISM Manufacturing PMI fell to an eight-month low of 46.8 in July, down from 48.5 and below the forecasted 48.8. Similarly, China’s Caixin Manufacturing PMI came in at 49.8 for July, missing the expected 51.5 and dropping from the previous 51.8. These figures indicate a slowdown in manufacturing activity, which could translate to reduced oil consumption.
Economic Slowdown and Federal Reserve Expectations
Oil traders face uncertainty as they navigate a complex situation involving an economic slowdown and increased expectations for a Federal Reserve rate cut. The CME’s FedWatch Tool shows that traders fully anticipate a 25-basis point rate cut on September 18. This potential easing of monetary policy is seen as a double-edged sword; while it may stimulate economic activity, it also reflects underlying economic weaknesses.
Additionally, traders are closely watching the upcoming July Nonfarm Payrolls (NFP) and Average Hourly Earnings data later Friday, for insights into the US labour market. These indicators will provide further clues on the health of the economy and could influence future oil demand projections.
(Source: OANDA)
