Oil prices extend decline amid sluggish economic data

October 25, 2023 (MLN): Oil prices witnessed another setback on Wednesday amid sluggish economic data from Germany, the Eurozone, and Britain, raising concerns about reduced energy demand.

Brent crude is currently trading at $86.88 per barrel, down by 0.36% on the day.

While West Texas Intermediate crude (WTI) is trading at $83.17 per barrel, down by 0.32% on the day.

Note that this marks the fourth consecutive decline in global oil prices.

In the past four trading sessions alone, both Brent Crude and WTI have declined by 6% and 7%, respectively.

Eurozone business activity data took a surprise downward turn this month, suggesting the bloc may slip into recession, as Reuters reported.

German readings suggested a recession in that country is underway. Britain's businesses reported another monthly decline in activity, highlighting recession risks ahead of the Bank of England's interest rate decision next week.

"There is definitely a dialogue about the global economy being worse this week than last," said Mizuho analyst Robert Yawger.

"It does not help that a lot of the top bankers and financial experts are in Saudi Arabia today talking about how bad the economy is," Yawger added, referring to the Future Investment Initiative event dubbed "Davos in the Desert."

In contrast to Europe, U.S. data showed business output ticked higher in October as manufacturing pulled out of a five-month contraction.

The relative strength of the U.S. economy helped lift the dollar, making dollar-denominated oil more expensive for holders of other currencies.

"As much as this market has been worried about the war in the Middle East and efforts from Saudi Arabia to tighten supply, demand has been a major headwind for a while now," said John Kilduff, partner at New York-based Again Capital.

However, the American Petroleum Institute's weekly storage report showed large declines in crude oil and fuel inventories last week, indicating strong demand in the country.

Meanwhile, the release of hostages from Gaza and intensifying diplomatic efforts to contain the conflict between Israel and Hamas have also taken out the risk premium that helped push Brent prices to their highest in a month on Friday, Kilduff and Yawger said.

Also on Tuesday, the International Energy Agency said it expects fossil fuel demand to peak by 2030 based on governments' current policies.

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