Oil prices down on weak manufacturing data and easing supply worries

The US is in talks with Venezuela to explore a temporary lifting of sanctions

Drilling rigs and pump jacks on Lake Maracaibo in Cabimas, Venezuela. Reuters

Oil prices continued to fall on Thursday as weak manufacturing data from major economies and improving supply outlook offset a large drop in US crude stocks.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.46 per cent lower at $82.83 a barrel at 6.56pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.42 per cent at $78.56 a barrel.

On Wednesday, Brent settled 0.98 per cent lower at $83.21 a barrel while WTI was down 0.94 per cent at $78.89.

“The oil market is going to remain tight over the short-term and unless we see a prolonged slowdown in demand, crude prices will likely find a home above the $80 level,” said Edward Moya, senior market analyst at Oanda.

Supply could receive a boost as a potential easing of sanctions in Venezuela would allow the country, which has the world’s largest crude reserves, to export its oil to more markets.

The US is in talks with Caracas to explore a temporary lifting of sanctions in exchange for allowing fair elections next year, Bloomberg reported on Thursday, citing sources.

Sanctions were imposed following the re-election of President Nicolas Maduro in 2018.

Last year, oil company Chevron was allowed to expand its operations in Venezuela and ship crude oil to the US.

Meanwhile, manufacturing data from several purchasing managers' index surveys stoked concerns about the global economy.

HCOB’s eurozone composite PMI, compiled by S&P, dropped to 47 in August from 48.6 last month, well below the 50-mark separating growth from contraction and a Reuters poll of 48.5.

“Within the eurozone, preliminary figures were also released for France and Germany. Although both composite indices fared worse in the flash estimate than had been expected, the decline was particularly marked for Germany,” Emirates NBD economists said in a research note on Thursday.

The S&P Global US composite PMI declined to 50.4 this month from 52 in July, driven by drops in the values of both the manufacturing and services ad sub-components.

Investors are waiting for further clarity on interest rates as inflationary pressures ease.

US Federal Reserve chairman Jerome Powell is expected to speak on Friday at the central bank’s annual symposium at Jackson Hole, Wyoming.

At its last meeting in July, the Fed raised US interest rates by 25 basis points, its 11th increase since March 2022, as part of its efforts to rein in inflation in the world’s largest economy.

This brought the Fed's benchmark rate to the target range of 5.25 per cent and 5.5 per cent, the highest in 22 years.

Meanwhile, US crude stocks, an indicator of fuel demand, fell by 6.1 million barrels last week to 433.5 million barrels, according to the US Energy Information Administration.

Analysts polled by Reuters were expecting a 2.8-million-barrel drop.

However, total petroleum stocks increased by 1.5 million barrels in the week that ended on August 18, while distillate inventories rose by 900,000 barrels, the EIA data showed.

US crude oil production rose by 100,000 barrels per day to 12.8 million bpd last week, the EIA said.

“After surging to a six month high close to $90 a barrel two weeks ago, Brent crude’s quiet rally is ebbing,” said Ehsan Khoman, head of commodities, ESG and emerging markets at MUFG.

The recent downturn has been exacerbated by the worsening economic outlook in China, revival of Iranian and Venezuelan oil supply and indications that the Fed is not yet finished with raising interest rates, Mr Khoman said in a research note on Thursday.

Iran expects to boost production to 3.4 million bpd by the end of summer, from 3.2 million bpd currently, Oil Minister Javad Owji was quoted as saying by Iranian state news agency Shana on Wednesday.

Iran has already shipped 2.2 million bpd of oil in the first 20 days of August, the highest ever monthly exports this year, amid cooling tensions between Washington and Tehran, MUFG said.

Despite the recent slump, oil fundamentals remain “largely constructive” as continued Opec+ supply cuts should ensure “sizeable” inventory draws for the remainder of the year, Japan's largest lender said.

“Looking ahead, we stick to our call for oil rising with rate hikes ending, the US dollar peaking, demand surging, all juxtaposed against the structural underinvestment thesis.”