Crude prices are declining as the global economy is slowing down towards a recession. Brent crude prices dipped from $108 per barrel below $100 after the U.S. Gross Domestic Product (GDP) dropped by 0.9% in the second quarter of 2022 following a contraction of 1.6% in the first three months of the year. The second consecutive quarterly decline of an economy formally means a technical recession.
On the other hand, the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) unexpectedly raised crude production by 100,000 per day for September after raising oil output by 648,000 in July and August, a level which was expected to remain similar. The unexpected decision pushed Brent crude prices to $102.5 per barrel. But later in the day oil reserves in the United States reported a rise of 4.47 million barrels following a contraction of 4.52 million barrels the week before. Brent crude prices reacted sharply dropping to $96-97 per barrel.
This was a surprise as weekly oil reserves data outweighed the strategic decision made by OPEC+ to lower crude production by 85%. Prices continue to hold close to $97 per barrel ahead of the July Non-Farm Payrolls report to be published this Friday. The Federal Reserve (Fed) is closely monitoring the labour market to adjust its monetary policy which will likely also affect crude prices. Fed’s chief Jerome Powell recently refused to confirm a recession in the United States after GDP contracted for the second quarter in a row, claiming that the strong and stable labour market is flagging economic development.
So, if these sophisticated narratives are confirmed by the strong Non-Farm Payrolls data this Friday, crude prices may gain support and move to the $100 per barrel of Brent crude benchmark.
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