Oil Prices Fall Amid Economic Concerns

By Scott DiSavino

NEW YORK (Reuters) – Oil prices fell about 2% on Tuesday due to worries that slower economic growth in the U.S. and China will reduce energy demand, especially after prices surged over 7% in the previous three days.

Brent futures fell $1.88, or 2.3%, settling at $79.55 a barrel, while U.S. West Texas Intermediate (WTI) crude declined $1.89, or 2.4%, settling at $75.53.

“Today’s price pullback, although significant, still fell within the range of a normal correction following a substantial three-day $6-per-barrel advance,” analysts from Ritterbusch and Associates stated.

Technical traders noted that both contracts pulled back after failing to surpass resistance at the 200-day moving average on Monday.

With U.S. gasoline futures still near a six-month low, the 321-crack spread, which measures refining profit margins, stayed close to its lowest level since February 2021 for the second consecutive day.

“If the refiner is not making money on gasoline and distillate, then less crude oil will be purchased. The barrels not bought will go to storage,” explained Bob Yawger from Mizuho.

In the U.S., consumer confidence reached a six-month high in August, but increased anxiety about the labor market emerged as the unemployment rate jumped to a near three-year high of 4.3% last month. This rise in unemployment elevated expectations for U.S. Federal Reserve interest rate cuts, which can stimulate economic growth and oil demand.

UBS Global Wealth Management now sees a 25% chance of a U.S. recession, up from 20%, citing weak July labor numbers.

Meanwhile, Germany’s economy shrank in the second quarter. Goldman Sachs lowered its average 2025 Brent price forecast by $5 per barrel, now estimating a range of $70-$85 and an average of $77 per barrel, attributing this to slower demand in China.

Concerns over the U.S. and Chinese economies have overshadowed bullish news from Libya and the Middle East, which could affect oil supplies. Recent price increases were due to potential shutdowns in Libya that could impact its 1.2 million-barrel-per-day output, coupled with tensions following counterattacks between Israel and Iran-backed Hezbollah.

“The sense of dread in the Middle East seems to have dissipated after Israel thwarted a large-scale Hezbollah missile attack… Iran did not intervene to protect Hezbollah,” Yawger noted.

U.S. Oil Inventories

Weekly U.S. oil storage data is expected from the American Petroleum Institute and the U.S. Energy Information Administration this week. Analysts predict a crude withdrawal from U.S. storage last week for the eighth time in nine weeks, with a projected decline of 2.3 million barrels for the week ending Aug. 23. This decrease is significantly less than the 10.6 million barrel decrease for the same week last year, and down from an average decrease of about 6.3 million barrels over the past five years (2019-2023).