On-going concerns over the global economy helped push oil prices to recent lows, with U.S. and foreign futures down more than 2.5 percent in recent trading. Most major U.S. stock indices, meanwhile, started off the fourth quarter in the black, though trouble in the Eurozone and weak economic reports from China dampened overall expectations for the global economy. A weak economy translates to weak demand for petroleum products. A decrease in crude oil stocks reported by the U.S. Energy Department, meanwhile, could be a sign of a rough future for energy markets.
European indices were in negative territory in Wednesday trading amid lingering concerns over the Spanish economy. One European fund manager described the Spanish debt crisis as "problematic." The Asian Development Bank, meanwhile, cut its growth estimate for China's gross domestic product from 8.5 percent predicted in April to 7.7 percent. ADB's Chief Economist Changyong Rhee said global forecasts "especially from Europe" meant there would likely be a "a serious drag on growth in the near term."
Crude oil futures traded on the New York Mercantile Exchange declined 3.2 percent in the Wednesday session to around $89 per barrel, the lowest level since early August. Overseas, meanwhile, Brent crude for November delivery slipped 2.4 percent to around $109 per barrel.
The drag on crude oil prices was exacerbated by reports from the U.S. Energy Department's Energy Information Administration that crude oil output from the United States increased 11,000 barrels per day to 6.52 million bpd, its highest level in more than 16 years. U.S. crude oil stocks, however, bucked analyst's expectations and dropped by 482,000 barrels during the last week of September. That came despite a 511,000 increase in crude oil imports for the same reporting period. Market analysts reacted more strongly, however, to overall weak economic data than to oil stocks in the United States.
Major U.S. stock indices, meanwhile, started off the fourth quarter in the black, with some blue chips posting 52-week highs. In the U.S. labor market, employment services showed an increase in hiring from small- and medium-sized firms. Major retailer Wal-Mart, for its part, said it was predicting a hiring splurge for the upcoming holiday season.
Last month, the IMF said it expected some modest recovery from the Eurozone but struck a downbeat tone about expiring tax and spending cuts in the United States. OPEC Secretary-General Abdullah al-Badri said last week from Berlin that oil markets were adequately supplied despite some clamoring over a possible drawdown from the U.S. Strategic Petroleum Reserve. With uncertainty lingering among major economies, however, it remains to be seen if adequate remains the prevailing opinion headed into the fourth quarter.
By. Daniel J. Graeber of Oilprice.com
