Oil Prices Drop by 3.3% on Weak Economic Data, Crude Stocks Build

Oil prices dropped by 3.3% on August 14 after disappointing economic data from Europe and China revived global demand fears and crude inventories rose unexpectedly for the second week in a row.

Brent Crude dropped by 3.2% and settled at $59.48 a barrel, losing some of the previous session’s sharp gains after the government decided to delay tariffs on Chinese goods. The global benchmark rose 4.7% on August 13, the biggest daily gain since December.

US West Texas Intermediate Crude futures shed 3.3%, dropping to $55.23 a barrel. They rose 4% the previous session, the most in just over a month.

China reported weak data for July, which included a surprise drop in industrial output growth, which reached a 17-year low. Performance reports underline growing economic problems brought on by the current trade war.

A global economic slowdown is in the works, and it’s amplified further by Brexit uncertainty and shaky European economies. In Germany, a slump in exports sent the economy in reverse in the second quarter and the Eurozone’s GDP showed barely any growth.

“The data out of China, the potential recession brewing in Germany, all of that is playing into global demand worries,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “Today, we’re back in fear mode.”

The US Treasury bond yield curve has inverted for the first time since 2007, which many economists interpret as the first sign of an upcoming recession.

“With much focus today shifting toward the inversion in the two- versus 10-year bond yields, global risk appetite saw another major contraction that easily flowed into the oil space,” said Jim Ritterbusch, president of Ritterbusch and Associates.

US crude stocks grew by 1.6 million barrels last week, beating analysts’ expectations for a decrease of 2.8 million barrels as stated by the Energy Information Administration. The inventories were about 3% above the five-year average at 440.5 million barrels, the EIA said in its weekly report.

“Countering this bearish build have been draws to both gasoline and distillates amid strong implied demand,” said Matt Smith, director of commodity research at ClipperData.

Commerzbank analyst Carsten Fritsch said that he expects Brent to continue recovering to $65 per barrel in the coming months. “Oil demand in China and the United States is unlikely to weaken noticeably as a result of the trade conflict, though if this were to happen, Saudi Arabia would further reduce its output.”