Oil futures may seesaw in the coming days thanks to recession fears in the United States despite the ongoing tensions in the Middle East, a key oil-producing region. Both Brent and WTI futures lost more than 3% last week, marking their fourth consecutive week of declines — the longest losing streak since November, per Reuters.
WTI crude exchanged-traded fund (ETF) United States Oil Fund LP USO lost 5.1% over the past week while United States Brent Oil Fund LP BNO retreated 4.9%.
Impact of U.S. Recession Concerns
Concerns over a potential U.S. recession have intensified following a weak July payrolls report, further dampening the oil demand outlook. Notably, U.S. job growth slowed more than expected in July, while the unemployment rate increased to 4.3%, which indicated a cooling labor market and may cause a recession in the U.S. economy. Plus, the decline in diesel consumption in China, a major driver of global oil demand, has also led to the downward pressure on prices.
OPEC+ Supply Decisions
OPEC+ has decided to maintain its plan to phase out voluntary output cuts starting in October, which is expected to increase oil supplies later in the year. Despite production cuts by the group, OPEC's oil output rose in July, as reported by Reuters.
Geopolitical Tensions
Geopolitical risks in the Middle East are providing some support to oil prices. The ongoing conflict in Gaza and the potential for a broader regional escalation, involving Iran, Hamas and Hezbollah are contributing to market uncertainty.
Will the Decline Continue?
The U.S. services sector grew more than expected in July, boosted by increased hiring and more new orders. The Institute of Supply Management services sector Purchasing Managers' Index (PMI) came in at 51.4% in July, up from 48.8% the month before. This is a bright spot in U.S. economic data points, which might lead the Fed to decide against more aggressive rate cuts to stimulate growth.
ETFs in Focus
At the current level, the operating backdrop doesn’t look very promising for oil ETFs. However, if the Fed cuts rates in September, the U.S. economy may gather momentum and oil ETFs, too, may rise on the prospects of demand recovery. Till then, keep track of oil ETFs like USO, BNO, Invesco DB Oil Fund DBO, United States 12 Month Oil Fund LP USL and ProShares K-1 Free Crude Oil Strategy ETF OILK.
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Get it free >>United States Oil ETF (USO): ETF Research Reports
Invesco DB Oil ETF (DBO): ETF Research Reports
United States 12 Month Oil ETF (USL): ETF Research Reports
United States Brent Oil ETF (BNO): ETF Research Reports
ProShares K-1 Free Crude Oil Strategy ETF (OILK): ETF Research Reports
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