Concerns about weakening global economy and oil demand growth trumped simmering U.S.-Iran tensions and OPEC and allies’ rollover of the production cuts into 2020, sending oil prices early on Friday on course to book their largest weekly decline in five weeks.
This week, despite the OPEC+ extension of the production cuts through March 2020 and despite geopolitical tension in the Middle East, oil prices were weighed down by fears of worsening economic conditions in major economies.
Oil prices started the week rallying by more than 2 percent on Monday morning, after Saudi Arabia and Russia essentially spoiled in the weekend the outcome of the OPEC+ meeting that was yet to be held, when Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman gave their support to extension of the cuts at a meeting at the G20 summit.
When OPEC and allies officially endorsed the extension of the cuts on Tuesday, oil prices plummeted by more than 4 percent in the worst reaction to an OPEC meeting in nearly five years, since November 2014, as oil market participants were focused more on signs of weakening demand rather than on an extension that was almost a foregone conclusion.
Then on Wednesday, the EIA reported a draw of 1.1 million barrels in U.S. commercial crude oil inventories for the week to June 28, much smaller than the American Petroleum Institute’s estimate of a 5-million-barrel draw, and much smaller than analyst expectations.
On the economy and oil demand side, a second consecutive decline in new factory orders in the United States in May exacerbated concerns over the pace of the economy on Wednesday. In Germany, Europe’s biggest economy, a much larger-than-expected drop in industrial orders also stoked fears of a possible recession coming.
“Devastating new orders data just undermined any hopes for an industrial rebound,” Carsten Brzeski, Chief Economist ING Germany, said on Friday.
By Tsvetana Paraskova for Oilprice.com
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