Oil down as weak economic data adds to demand growth concerns

Brent’s price has felt some downward pressure as manufacturing activity in the world's two top oil consumers – the US and China – contracted in October, signalling slower demand.

IMAGE: Flags of US and China. Getty Images

The Manufacturing Purchasing Managers' Index (PMI) reading in the US, the world's largest oil consumer, came in at 48.7% in October, down from September’s 49.1%, the Institute for Supply Management (ISM) reported.

In China, manufacturing PMI came in at 49% last month, lower than September’s 49.8% growth, market intelligence provider JLC reported citing the country’s National Bureau of Statistics (NBS).

The latest data pointed to weaker industrial activity in both, the US and China — the world’s two biggest oil consumers — heightening concerns over demand growth.

A PMI reading below 50 signals contraction in manufacturing activity — a key indicator of economic health that reflects slowdown in production and new orders, as well as lower inventory levels. The data also highlights market worries that softer industrial output could dampen oil consumption through the remainder of the year.

However, analysts note that sustained weakness in US manufacturing could prompt the Federal Reserve (Fed) to consider interest rate cuts to stimulate borrowing, investment and spending.

Lower rates typically boost demand by making dollar-denominated commodities like oil more affordable for holders of other currencies, potentially offering some upside support to prices in the medium term.

By Aparupa Mazumder

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