Oil Prices Drop as Economic Slowdown in U.S. and China Raises Demand Concerns
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Oil Prices Drop as Economic Slowdown in U.S. and China Raises Demand Concerns

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Azeez Mustapha

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Oil prices fell by about 2% on Tuesday, driven by growing concerns that a slowdown in economic growth in both the U.S. and China could lead to reduced energy demand. This decline followed a sharp 7% surge over the prior three days.

Brent crude futures decreased by $1.88, or 2.3%, to close at $79.55 per barrel, while U.S. West Texas Intermediate (WTI) crude dropped $1.89, or 2.4%, to settle at $75.53 per barrel.

Oil Prices Drop as Economic Slowdown in U.S. and China Raises Demand Concerns

Analysts at Ritterbusch and Associates commented that “today’s significant price pullback still falls within the range of a normal and necessary correction after a strong $6-per-barrel advance over three days.” Technical traders highlighted that both Brent and WTI prices retreated after failing to break through resistance near their 200-day moving averages on Monday.

In the U.S., gasoline futures hovered near a six-month low, and the 3-2-1 crack spread—a critical measure of refining profit margins—remained at its lowest level since February 2021 for the second straight day. Bob Yawger, director of energy futures at Mizuho, noted, “If refiners aren’t profiting from gasoline and distillate, they’ll reduce crude oil purchases, leading to more barrels being sent to storage.”

August saw a rise in U.S. consumer confidence to a six-month high, but concerns about the labor market increased after the unemployment rate climbed to 4.3%, the highest in nearly three years.

This rise in unemployment has strengthened expectations that the Federal Reserve may cut interest rates next month, which could potentially boost economic growth and oil demand. UBS Global Wealth Management raised the likelihood of a U.S. recession to 25%, up from 20%, citing weaker labor data from July.

Meanwhile, Germany’s economy contracted in the second quarter, amplifying global economic concerns. Goldman Sachs responded by cutting its 2025 Brent forecast by $5 per barrel, pointing to weaker demand in China. The bank now predicts Brent prices to range between $70 and $85 per barrel, with an average forecast of $77 per barrel, down from $82.

Despite these economic concerns, recent developments in Libya and the Middle East that could reduce oil supplies were not enough to lift prices. Oil prices had risen in recent days on the potential disruption of Libya’s oil production, which could reduce output by up to 1.2 million barrels per day, and heightened tensions in the Middle East following clashes between Israel and the Iran-backed Hezbollah group in Lebanon.

However, the situation appeared to stabilize after Israel thwarted a major Hezbollah missile attack. Yawger remarked, “It’s notable that Iran did not step in to support Hezbollah.”

Oil Prices Drop as Economic Slowdown in U.S. and China Raises Demand Concerns

U.S. Oil Inventories

The American Petroleum Institute (API) and the U.S. Energy Information Administration (EIA) are set to release weekly U.S. oil inventory data, which is expected to show a decline in crude storage for the eighth time in nine weeks.

Analysts estimate a reduction of 2.3 million barrels for the week ending August 23, a smaller decline than the 10.6 million barrels seen during the same week last year and the five-year average of 6.3 million barrels.

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