Middle East Hostilities Eclipsed By Dismal World Economic News, Crude Plummets

A new phase of intensified hostilities was shrugged off by traders: File Image/Pixabay

Weak employment data from the U.S. on top of recent news of weaker manufacturing activity across Asia and Europe were said to be the driving factors behind crude prices tumbling on Friday to an eight-month low.

Brent settled down $2.71 to $76.81 per barrel, while West Texas Intermediate settled down $2.79 at $73.52.

The U.S. Labor Department on Friday disclosed a fourth straight monthly increase in the unemployment rate from 4.1 percent in June to 4.3 percent, an increase analysts believe practically guarantees a Federal Reserve interest rate cut in September; economists called for a 50 basis point reduction in borrowing costs.

The Labor Department figures also revealed that the increase in annual wages last month was the smallest in more than three years, and these findings caused Brian Bethune, an economics professor at Boston College, to remark, "There is absolutely no justification for continuing to exert an elevated level of monetary restrictiveness on the economy."

The U.S. news came on the heels of the Institute for Supply Management's U.S. manufacturing Purchasing Managers' Index (PMI) dropping to 46.8 last month, the lowest reading since November, from 48.5 in June; also, HCOB's final euro zone manufacturing PMI, compiled by S&P Global, maintained June's 45.8 in July (it has been below the 50 mark separating growth from contraction for over two years).

Germany's manufacturing sector experienced an accelerated downturn, and France's contraction rate was the fastest in six months; plus, China's Caixin/S&P Global manufacturing PMI sank to 49.8 in July from 51.8 in June; Japan suffered a shrinkage of manufacturing activity, and South Korea posted a slower pace of expansion.

The week's earlier analytical concern that drove prices – expanding hostilities in the Middle East – were eclipsed by these disappointing figures on Friday, even though Lebanon's Iran-backed Hezbollah said its conflict with Israel had entered a new phase.

John Kilduff, founding partner at Again Capital, said, "Oil has been pumped up on just extraordinary jitters over the Middle East situation but here we are several days after a significant event."

Callum Macpherson, head of commodities at Investec, pointed out that if the market softness continues, "core OPEC+ members might well decide to delay the phasing-out of cuts for another quarter — kicking the can down the road in the hope that demand improves."

The Organization of the Petroleum Exporting Countries on Thursday reiterated that it will remain on track to boost production starting next quarter but stressed that supply hikes can be paused or reversed as needed.

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