Oil prices continued their downward spiral on Wednesday, extending the significant drop seen in the previous session. The decline was primarily fueled by expectations of a potential resolution to the political dispute in Libya, which had disrupted oil exports, and growing concerns over sluggish global demand.
Brent crude futures for November fell by 0.6% to USD 73.32 per barrel, while U.S. West Texas Intermediate crude futures for October decreased by 0.7% to USD 69.85 per barrel. Both contracts reached their lowest levels since December, reflecting the market’s response to the developing situation in Libya and the broader economic outlook.
The political turmoil in Libya had significantly impacted oil production and exports, with rival factions vying for control of the country’s oil revenue. However, recent developments suggest that a resolution may be in sight. The two legislative bodies in Libya agreed on Tuesday to jointly appoint a central bank governor, a step that could potentially defuse tensions and pave the way for a return to normal oil operations.
The prospect of increased Libyan oil supplies, combined with economic weakness in major oil-consuming nations like the United States and China, has created a challenging environment for oil prices. The slowdown in manufacturing activity and declining new home prices in China, the world’s largest importer of crude, have raised concerns about future oil demand.
Meanwhile, the U.S. manufacturing sector has also shown signs of weakness, with the Institute for Supply Management (ISM) data revealing a modest improvement in August but still remaining below levels seen earlier in the year. This suggests that economic growth in the United States may be slowing, which could further impact oil demand.
The delayed release of weekly U.S. inventory data due to the Labor Day holiday has added to the uncertainty in the market. The American Petroleum Institute (API) is expected to release its report on Wednesday afternoon, followed by the Energy Information Administration (EIA) report on Thursday.
Analysts anticipate that U.S. crude oil and gasoline stockpiles may have decreased in the previous week, while distillate inventories are likely to have increased. These inventory figures will provide valuable insights into the supply and demand dynamics in the U.S. oil market.