- The US economy added fewer jobs than reported between April last year and March this year.
- Minutes showed that Fed policymakers were ready to cut interest rates in September.
- Crude inventories fell by a bigger-than-expected 4.6 million barrels last week.
Oil prices fell sharply on Wednesday after the US government revised the US payrolls data to show a weaker labor market. This revision overshadowed positive sentiment from a decline in crude oil inventories and dovish FOMC policy minutes.
Brent Futures (Source: ICE Futures Europe)
The US economy added fewer jobs than reported between April last year and March this year, rekindling fears of a faster-than-expected slowdown and reducing expectations of a soft landing by the Fed. A hard landing would mean a collapse in the economy due to high interest rates, which would hurt oil demand and lower prices.
The revision hurt risk sentiment and overshadowed the dovish Fed minutes. On Wednesday, minutes of the last Fed meeting showed that policymakers were ready to cut interest rates in September if the data came in line with expectations. Some were even ready to start lowering borrowing costs immediately.
Inflation has consistently fallen in the second and third quarters, raising confidence that it will reach the 2% target. At the same time, there is more pressure on the US central bank to lower rates since the economy is slowing down. Investors are fully expecting a rate cut next month. Lower borrowing costs will improve the outlook for oil demand. As money becomes cheaper, businesses perform better, and fuel demand increases.
Elsewhere, data on Wednesday revealed that crude inventories fell by 4.6 million barrels last week. This was a bigger reading than the 2.7 million barrel drop forecast. The drop indicates increased demand, which is bullish for oil prices.
However, the outlook for global demand remains dim because of China’s weak economy. Experts have downgraded their forecasts for oil demand in 2024 and 2025 due to the fragile state of China’s economy. China is the largest consumer of oil. Therefore, if demand drops in the country, it hurts global prices.
Elsewhere, Middle East tensions kept traders on high alert. Militants attacked oil vessels in the Red Sea, which could lead to further delays in distribution. At the same time, the US is making efforts to keep ceasefire talks alive. However, chances of an agreement have fallen significantly since the killing of senior leaders in the war.
