Oil prices fell further on Wednesday due to market concerns about the global economy’s deterioration, pessimistic oil demand signals from OPEC+, and tightened COVID-19 limitations in China.

Brent oil futures for October, which expire on Wednesday, were down $2.77 at $96.43 a barrel after losing $5.68 on Tuesday. At $95.37 a barrel, the more active November contract was down $1.38, or 1.4%.

By 1303 GMT, US West Texas Intermediate (WTI) crude futures were down $1.31, or 1.43%, at $90.33 per barrel, after falling $5.37 the previous session on recession fears. In the previous trading, both contracts declined by more than 3%.

Chinese factory activity contracted in August, and the country’s service sector expanded slower than expected. Furthermore, the Fed and the ECB will raise interest rates sharply next month, maybe by as much as 0.75% – all of which causes equities investors to flee. Oil follows suit, at least for the time being.

Eurozone inflation has risen to a new high. It is expected to reach double digits soon, signaling a series of major interest rate hikes even as a harsh recession appears increasingly likely. In August, inflation in the eurozone’s 19 member countries rose to 9.1% from 8.9% the previous month. Meanwhile, due to the country’s gloomy economic outlook, UK bonds resumed a rapid sell-off on a magnitude not seen since the 1990s.

China’s factory activity fell further in August as new COVID infections, the worst heatwaves in decades, and an ailing property sector impacted output, indicating that the economy may struggle to maintain momentum.

Oil to International Crude Markets

The return of the Iran nuclear deal could be near, bringing a large amount of oil back to world crude markets.

Before President Donald Trump withdrew from the pact in 2018, Iran was OPEC’s third-largest producer, after only Saudi Arabia and Iraq. It was the world’s fourth-largest oil producer in 2017, trailing only the United States, Saudi Arabia, and Russia.

Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, warned last week that OPEC might have to curtail oil production. According to the minister, the physical and paper markets are “disconnected,” with the latter suffering from “extremely limited liquidity and significant volatility.

Iranian negotiators voiced optimism about the prospects for a deal in mid-August, with one advisor saying “we’re closer than we’ve been previously” and that the “remaining issues are not particularly tough to settle.”

However, a few remaining sticking points are proving tough to settle. The main dispute between the Iranian and Western camps is the International Atomic Energy Agency’s (IAEA) ongoing inquiry into inexplicable uranium traces discovered at Iranian facilities in the early 2000s.

Risks to Oil Demand Growth

According to an OPEC+ study released on Wednesday, the oil market will likely see a larger-than-expected surplus this year as rising energy costs and tighter monetary policy put downward pressure on oil consumption.

The revelation comes only days before an OPEC+ policy meeting on September 5th and more than a week after OPEC leader Saudi Arabia said the group would decrease oil supply.

The JTC expects the oil market surplus to reach 900,000 barrels per day (BPD) this year, an increase of 100,000 BPD from its prior prediction.

According to the JTC’s base case scenario, the oil market will be in surplus of 3.12 million barrels per day in September, falling to 0.6 million barrels per day in October before rebounding to 1.41 million barrels per day in November.

According to the JTC research, OPEC+ predicts a surplus of 900,010 BPD next year under its base scenario.

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