Oil prices fell early on Tuesday with Brent breaking below the $75 threshold for the first time this year as concerns about global oil demand continued to trump Libya's production decline.
As of 9:21 a.m. EDT on Tuesday, Brent Crude had slumped by 3.47% at $74.79. The U.S. benchmark, WTI Crude, was down by 2.98% on the day to trade at $71.30.
Signals from OPEC+ sources that the group would proceed with a gradual easing of the cuts in October have already depressed oil prices and market sentiment at the end of last week.
At the start of this week, oil remained under pressure on Monday in lighter Labor Day trade in New York. Prices were weighed down by the latest economic data from China, which showed that factory activity continues to contract.
This weekend, the official Purchasing Managers' Index from the National Bureau of Statistics showed that China's manufacturing activity contracted for a fourth consecutive month in August and slumped to the lowest reading in six months.
Another weak manufacturing dataset from China weighed on the outlook of oil demand in the world's top crude oil importer.
While the production outage in Libya keeps a floor under prices, it has so far failed to boost oil, with traders currently focused on the weaker-than-expected oil demand in China and low refining margins in the U.S. and Europe.
The fact that the supply outage in Libya has failed to boost oil prices "further underscores the current weak sentiment, which increasingly threatens Brent and WTI's ability to hold above key support levels that have been in place for more than a year," Ole Hansen, Head of Commodity Strategy at Saxo Bank, wrote in a Tuesday note.
A break below the $75 a barrel support level in Brent may attract fresh momentum selling and a move towards the next major area of support around $71, Hansen added.
"While the Libyan disruption might have opened the door for OPEC+ to proceed with their planned production increase-starting with 180,000 barrels a day from next month-the risk of prices falling further below the group's desired and increasingly elusive target of USD 90 per barrel Brent may now compel them to reconsider or postpone this decision."
By Charles Kennedy for Oilprice.com
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Comments
This is the law of economics unless the global economy is shrinking which isn't the case since the China-led half of the economy is growing.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert