Oil prices decline on weak economic data from the US and China

The front-month ICE Brent contract plunged by $3.77/bbl to settle at $73.75/bbl on Tuesday, after manufacturing activity in the world's top oil consumers, China and the US, fell short of expectations in August.

PHOTO: Flags of the US and China. Getty Images

Manufacturing Purchasing Managers' Index (PMI) reading in China dipped to 49.1% in August, from 49.4% in July, the country's National Bureau of Statistics (NBS) reported. The latest reading shows that factory activity in China has shrunk for a fourth consecutive month.

In the US, manufacturing PMI came in weaker-than-expected at 47.2% in August, the US Institute for Supply Management (ISM) reported. Although the PMI reading slightly increased from 46.8% in July, it remained below the benchmark level of 50%, indicating sluggish growth in the country’s manufacturing sector.

“[Brent] crude futures were on a slippery slope early Wednesday… as a panicky sell-off gripped the broader financial markets on renewed fears over the US economy,” VANDA Insights’ founder and analyst Vandana Hari remarked.

A PMI reading below 50 typically indicates weak economic health and a contraction in the manufacturing sector, which includes production, inventory levels, new orders, etc. It also highlights demand growth concerns, ultimately weighing down on prices of commodities like oil.

“A wave of risk aversion swept through the markets after the release of weaker-than-expected US manufacturing data for August,” Hari added.

By Aparupa Mazumder

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