- On Tuesday, oil collapsed by 5% after top leadership in Libya made steps to resolve the recent conflict.
- US job vacancies fell in July.
- OPEC+ is planning to delay production increases.
Oil prices recovered slightly on Thursday after collapsing in the previous sessions. Prices suffered on Tuesday and Wednesday as investors grappled with fears of a recession in the US. At the same time, a likely end to the dispute in Libya lowered the chances of a tighter market.
On Tuesday, oil collapsed by 5% after top leadership in Libya made steps to resolve the recent conflict. Initially, a dispute over the control of oil and the central bank led to a pause in production. This put a premium on oil as it increased the chances of tighter supply. However, by Tuesday, there was an agreement to appoint a new central bank governor. Consequently, production will likely return to previous levels, removing the premium on oil.
US job vacancies (Source: Bureau of Labor Statistics)
Prices continued to fall on Wednesday as US data raised fears of a recession. As a result, risk appetite declined, and investors preferred safer assets. Notably, job vacancies in the US fell in July, surprising economists who had expected an increase. The drop in demand in the labor market was a trigger that led to a selloff in most markets.
At the same time, investors raised the chances of a 50-bps rate cut, indicating fears about the economy. In the long run, a significant rate cut will benefit oil prices by increasing demand. However, the initial reaction was panic and fear that the economy could deteriorate further before recovering.
Furthermore, investors have been worried about demand in China, a significant oil consumer. Data over the weekend revealed weak business activity in the country. This news was disappointing since economists had expected a recovery in the second half of the year. However, if the economy remains fragile, demand for fuel will likely remain low.
Nevertheless, the decline in oil paused on Thursday after news that OPEC+ was planning to delay production increases. According to reports, officials were worried about the recent collapse in oil. Any output boost in October could further lower prices. Therefore, the organization may continue with current cuts.
Meanwhile, data on Thursday revealed an unexpected drop in US private employment to 99,000. This continues the weak demand trend in the labor market that will likely increase Fed rate cut expectations. Investors will now await the NFP report.
