Oil prices dropped below $70 per barrel on Tuesday for the first time since late 2021, driven by growing concerns over a global economic slowdown.
At the same time, global stock markets showed mixed results as traders weighed the outlook for interest rates in the U.S. and Europe, with fresh inflation data expected on Wednesday.
Brent crude fell more than three percent, slipping under $70, while the U.S. benchmark, West Texas Intermediate (WTI), dropped over four percent by the close of trading.
According to PVM Oil Associates analyst Tamas Varga, OPEC’s minor revisions to demand forecasts contributed to the decline, but the larger concerns were China’s economic slowdown and expectations that the U.S. Federal Reserve would only reduce rates by 0.25 percent next week.
“Chinese economic struggles — with August oil imports down seven percent compared to last year — along with a growing belief in a smaller Fed rate cut are driving this sell-off,” Varga told media.
Swissquote analyst Ipek Ozkardeskaya added that even positive factors such as anticipated interest rate cuts and OPEC+ maintaining production levels were insufficient to halt the downward trend. “Oil traders are reluctant to push against this strong current, further fueling the momentum,” she said.
– US Markets Mixed –
U.S. equities closed mixed on Tuesday, following Friday’s drop due to disappointing job figures that reignited fears the Federal Reserve may have delayed cutting interest rates.
The Dow Jones Industrial Average dipped 0.2 percent, while the S&P 500 rose 0.5 percent, and the tech-heavy Nasdaq Composite gained 0.8 percent.
Market participants were also closely watching U.S. politics ahead of the debate between Kamala Harris and Donald Trump, and anticipating consumer inflation data to be released on Wednesday.
“Tomorrow’s U.S. inflation report will be a key test for investor sentiment,” said AJ Bell’s investment director Russ Mould.
The Fed is expected to lower interest rates at next week’s meeting, but uncertainty remains over whether the cut will be 25 or 50 basis points. A more aggressive cut could signal increased concerns about the economy.
Tuesday’s oil price plunge, however, suggests fears of economic slowdown may outweigh concerns about inflation.
“Financial markets have shifted focus from controlling inflation to supporting economic growth,” said Saira Malik, chief investment officer at Nuveen. She noted that market volatility has increased due to weak macroeconomic data, especially labor figures.
Concerns over China’s economy are also dampening sentiment, with recent trade data failing to ease investor fears. China’s leadership faces growing pressure to implement new stimulus measures, though they’ve shown reluctance so far.
In Europe, stock markets ended the day lower, with traders anticipating a rate cut from the European Central Bank. Meanwhile, in the UK, data showed wage growth had slowed, reducing the likelihood of a Bank of England rate cut next week.
– Market Figures at 2030 GMT –
West Texas Intermediate: DOWN 4.3 percent at $65.75 per barrel
Brent Crude: DOWN 3.7 percent at $69.19 per barrel
New York – Dow: DOWN 0.2 percent at 40,736.96 points
New York – S&P 500: UP 0.5 percent at 5,495.52
New York – Nasdaq Composite: UP 0.8 percent at 17,025.88
London – FTSE 100: DOWN 0.8 percent at 8,205.98
Paris – CAC 40: DOWN 0.2 percent at 7,407.55
Frankfurt – DAX: DOWN 1.0 percent at 18,265.92
Tokyo – Nikkei 225: DOWN 0.2 percent at 36,159.16
Hong Kong – Hang Seng: UP 0.2 percent at 17,234.09
Shanghai – Composite: UP 0.3 percent at 2,744.19
Euro/dollar: DOWN at $1.1023 from $1.1041
Pound/dollar: UP at $1.3083 from $1.3075
Dollar/yen: DOWN at 142.44 yen from 143.11 yen
Euro/pound: DOWN at 84.25 pence from 84.42 pence