Oil prices dropped by 4% in one day on September 4th, a nine month low. Oil production had dropped from nearly 959,000 barrels per day on August 26th to around 591,000 barrels per day as of August 28th. Even the reported barrel production from August 26th was a drop from the 1.28 million barrels produced per day on July 20th.
Moreover, West Texas Intermediate (WTI) Futures price dropped below $70 per barrel, a fall that has not been seen since last December and Brent Futures dipped below $74 per barrel, a first in 9 months (link). Both of these oil Futures have dropped over 10% since their high on August 27th.
The reason for these oil price drops had mainly been due to the slow or lack of economic growth in major economies such as the US and China. Furthemore, these waning oil prices have also been influenced by reports of political turmoil in Libya. Their oil exports were halted on September 2nd as the “stand off” between rival political factions in the country continued over the control of bank and oil revenue.
The US economy has also continued to show weak growth, further affecting oil prices. The GDP in the first quarter only increased by an annual growth of 1.4%, which is significantly lower than 3.4% growth from the previous year’s 4th quarter. This growth has been the weakest since the second quarter of 2022.
China has also been experiencing low economic activity, with their manufacturing sector being a major influence on oil exports. The manufacturing industry in August was at a six-month low, meaning that demand in the region could continue to significantly decrease, further decreasing the price of oil.
The slowing economy in the US and China will mean a bad hit on the global demand for oil, as both countries are large consumers of oil, being manufacturing powerhouses. However, oil will definitely not be the only industry that is hit by the slowing economy of these major markets.
Though the US had previously bounced back from recession worries a couple months ago, their economic troubles are not completely behind them. There are still various problems in the market that have continued to slow down the economy. Also, China’s housing market is still facing turmoil, affecting other sectors of their economy as well. As these two large economies face difficulties, so will most of the global economy. Though a recession is not imminent, it is likely that the economy will continue to struggle this year.
Written by Vi Lam Dinh
