Brent drops below $75 as bearish sentiment builds

Oil prices fell early on Tuesday, with Brent falling below $75 for the first time this year, as concerns over global oil demand continued to outweigh falling production in Libya.

As of 9:21 am EDT Tuesday, Brent crude was down 3.47% at $74.79. US benchmark WTI Crude fell 2.98% on the day to trade at $71.30.

Signals from OPEC+ sources that the group will proceed with a gradual easing of cuts in October already depressed oil prices and market sentiment late last week.

Earlier this week, oil remained under pressure in lighter Labor Day trade in New York on Monday. Prices were weighed down by the latest economic data from China, which showed factory activity continuing to contract.

This weekend, the official purchasing managers’ index from the National Bureau of Statistics showed that China’s manufacturing activity contracted for a fourth straight month in August and fell to the lowest level in six months.

Another set of weak output data from China hurt the outlook for oil demand in the world’s top crude importer.

While the production cut in Libya is keeping a floor below prices, it has so far failed to boost oil, with traders currently focused on weaker-than-expected oil demand in China and low refining margins in the US and Europe.

That the Libyan supply disruption failed to lift oil prices “further underlines the current weak sentiment, which increasingly threatens the ability of Brent and WTI to hold above key support levels that have been in place since May well over a year,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, wrote in a note on Tuesday.

A break below the $75-a-barrel support level in Brent could prompt fresh selling momentum and a move to the next major support area around $71, Hansen added.

“While the disruption in Libya may have opened the door for OPEC+ to go ahead with its planned output increase – starting at 180,000 barrels a day from next month – the risk of prices falling further below the desired and increasingly elusive target of to the group of USD 90 per barrel Brent. may now compel them to reconsider or postpone that decision.”

By Charles Kennedy for Oilprice.com

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