Written by Samer Hasn, Senior Market Analyst at XS.com
Oil prices resumed their slide on Nov 22, falling more than 0.6% for both Brent and WTI, which are not far from their lowest levels this year.
Oil’s renewed losses today come with weaker sentiment in the Eurozone in November amid concerns about the impact of the trade war that could worsen with Donald Trump’s return to the White House early next year.
Today we saw a series of very negative S&P Global purchasing managers’ reports for both the Eurozone and the UK, which showed weaker-than-expected performance.
Services activity in the Eurozone contracted unexpectedly, while manufacturing activity deepened its contraction. New orders continued to fall for the sixth month in a row at the fastest pace this year, and companies continued to cut jobs for the fourth month in a row. Furthermore, business sentiment fell sharply to its lowest level since September 2023.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, commented on the eurozone report that manufacturing is heading towards recession and services are suffering again. He said this is not surprising given the political chaos in the eurozone and that Trump’s re-election has added challenges to the economy.
European Central Bank President Christine Lagarde also pointed out today that threats to free trade around the world are increasing, pointing to the risk that a trade war could be exacerbated by Trump. Lagarde also said that the geopolitical environment has become less favorable and that these factors combined make the EU more vulnerable as it is the most open major economy.
Soeren Radde, a former economist at the European Central Bank, said that sentiment could suffer further as details of US trade policy emerge in the coming months. In other words, today’s figures could be a precursor to what’s to come.
Today’s negative Eurozone PMIs add to concerns about the future of the global economy and add to concerns about the Chinese economy in light of the potential trade war, which could keep the outlook for crude oil demand weak next year.
While Trump’s steps on protectionist trade policies are uncertain, they may have been previously hinted at in the campaign to pressure for better trade terms in favor of the United States.
On the other hand, the gains made by the US dollar on concerns about rising inflation and prolonged high interest rates are putting pressure on dollar-denominated oil prices to decline.
As hopes for a possible rate cut by the Federal Reserve next January have gradually diminished over the past weeks, with markets now only expecting a 14% chance of a quarter-point cut, according to the CME FedWatch Tool.
On the other hand, and on the upside, growing concerns this week about the conflict between Russia and Ukraine spiraling out of control amid unprecedented mutual escalation could keep a premium on geopolitical tensions for crude prices.
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