Oil Prices Decline As Recession Fears In U.S. Outweigh Middle East Tensions

Asian share markets tumbled as U.S. recession fears prompted investors to flee risk assets, anticipating that swift rate cuts will be needed to revive growth.

Oil futures extended their losses on Monday as fears of a potential recession in the United States, the world’s largest oil consumer, overshadowed concerns about supply disruptions from the Middle East, the leading oil-producing region.

Reuters reports that Asian share markets tumbled as U.S. recession fears prompted investors to flee risk assets, anticipating that swift rate cuts will be needed to revive growth.

Brent crude fell $1.04, or 1.4%, to $75.77 a barrel by 0605 GMT, while U.S. West Texas Intermediate crude dropped $1.09, or 1.5%, to $72.43 a barrel. Both benchmarks had plummeted more than 3% on Friday, marking their fourth consecutive week of losses, the longest losing streak since November.

ING analysts, led by Warren Patterson, noted that U.S. recession concerns following Friday’s weak July payrolls report exacerbated existing worries about Chinese demand in the oil market.

Declining diesel consumption in China, the largest contributor to global oil demand growth, is pressuring oil prices.

Meanwhile, oil prices were affected after OPEC+ adhered to its plan to phase out voluntary production cuts from October, signaling an increase in supplies later this year. A Reuters survey revealed that OPEC oil output rose in July despite the group’s production cuts.

However, geopolitical tensions in the Middle East provided some support for oil prices. Fighting in Gaza continued on Sunday, following unsuccessful talks in Cairo the previous day.

Israel and the United States are preparing for a significant escalation in the region after Iran and its allies, Hamas and Hezbollah, vowed to retaliate for the killings of Hamas leader Ismail Haniyeh and Hezbollah’s top military commander Fuad Shukr last week.

Sydney-based IG market analyst Tony Sycamore commented, “The risk of a wider regional war, while still relatively small, cannot be ignored. There are substantial left and right tail risks at this point.”