Crude oil prices dropped by 5% on Tuesday, September 3, erasing the gains achieved so far this year. This decline followed comments from a Libyan central bank official indicating that the agreement to resume oil production in the country was nearing its end. With the potential return of more than 500,000 barrels of Libyan crude oil per day to the market, global oil consumption has once again come under the spotlight.
In recent months, economic concerns in major oil-consuming countries have weighed on market sentiment, with various geopolitical concerns and minor supply disruptions masking these worries. Looking ahead, the market is preparing for a gradual production recovery, beginning with an additional supply of 180,000 barrels per day within weeks.
Robert Yawger, Director of Energy Futures at Mizuho Securities USA, stated: “A toxic mix of oversupply, declining demand, bearish technical indicators, and weak product fundamentals is conspiring to crush crude oil.”
The Institute for Supply Management (ISM) announced last Tuesday that the U.S. Manufacturing Purchasing Managers’ Index (PMI) recorded 47.2 in August, up from 46.8 in July, which was the lowest level since November. While employment improved, the overall trend continued to indicate weak factory activity.
The PMI remained below the 50 threshold for the fifth consecutive month but was above the 42.5 level that ISM states indicates overall economic expansion over time. Data on manufacturing output and business equipment spending suggest that the manufacturing sector has been in a general recession.
The new orders sub-index fell to 44.6, while production declined further, with the production sub-index dropping to 44.8. Despite weak orders, manufacturers faced rising input costs, likely reflecting higher shipping costs. The survey’s measure of prices paid by manufacturers rose to 54.0 from 52.9 in July, suggesting that the deflation of goods may have reached its end, though it is unlikely to have a significant impact on inflation, which is slowing. Employment continued to contract, but at a slower pace.
Media reports citing sources indicate that policymakers at the European Central Bank (ECB) are becoming increasingly divided over economic forecasts, with some worried about a recession while others are concerned about inflationary pressures that could influence future monetary policy decisions.
The sources stated that as the Eurozone enters a state of instability, future policy decisions may become more complex. While divisions within the ECB are unlikely to affect the policy decision in September—where there is already consensus on a rate cut—the way ECB President Christine Lagarde communicates the decision could alter market expectations for the October meeting.
