LONDON, August 2(ABC): Oil prices dropped sharply on Tuesday as weak manufacturing data from China and Europe weighed on the demand outlook while investors braced for this week’s meeting of officials from OPEC and other top crude producers on supply.
Brent crude futures were down $3.77, or 3.6%, at $100.20 a barrel by 1319 GMT, having fallen to a session low of $99.75.
US West Texas Intermediate crude was down $4.59, or 4.7%, at $94.03, after hitting a low of $93.49.
A break for Brent prices below the support level of $102.68 could trigger a drop into a range of $99.52 to $101.26, Reuters technical analyst Wang Tao said.
Factories across Asia and Europe struggled in July as flagging global demand and China’s strict COVID-19 restrictions slowed production, surveys showed on Monday, adding to concerns about economies sliding into recession.
S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) for the eurozone fell to 49.8 in July from June’s 52.1, falling below the 50 mark separating growth from contraction for the first time since June 2020.
The Caixin/Markit PMI eased to 50.4 in July from 51.7 the previous month, well below analyst expectations, data showed on Monday.
“[China] was already facing an uphill challenge, to put it mildly, with regards to its growth target this year and the fact that manufacturing activity is slowing again doesn’t bode well,” said Oanda analyst Craig Erlam.
Brent and WTI both ended July with a second straight monthly loss for the first time since 2020 as soaring inflation and higher interest rates raise fears of a recession that would erode fuel demand.
Analysts in a Reuters poll for the first time since April reduced their forecast for 2022 average Brent prices to $105.75 a barrel. Their estimate for WTI fell to $101.28.
The Organization of the Petroleum Exporting Countries (OPEC)and allies including Russia, together known as OPEC+, meet on Wednesday to decide on September output.
Two of eight OPEC+ sources in a Reuters survey said that a modest increase for September would be discussed at the August 3 meeting. The rest said output is likely to be held steady.
US President Joe Biden visited Saudi Arabia last month.
“While President Biden’s visit to Saudi Arabia produced no immediate oil deliverables, we believe that the kingdom will reciprocate by continuing to gradually increase output,” RBC Capital analyst Helima Croft said in a note.
While OPEC+ aimed to have fully unwound its record output cuts by this month, data showed the group as of June was still almost three million bpd short of its output target as some producing countries struggle to bring wells back on line.
The group’s new secretary general, Haitham al-Ghais, reiterated on Sunday that Russia’s membership in OPEC+ was vital for the success of the output pact, Kuwait’s Alrai newspaper reported.
Also weighing on prices was a rise in Libyan oil production, which hit 1.2 million barrels per day (bpd), up from 800,000 bpd on 22 July, after the lifting of a blockade on several oil facilities.
U.S. oil production also continued to climb. The country’s rig count rose by 11 in July, increasing for a record 23rd month in a row, data from Baker Hughes showed.