Slippery Slope for Crude Oil Thanks to Downbeat Economic Reports

What’s happening: US crude oil moved lower on Friday, but still closed the week with a small gain.

What happened: Baker Hughes reported an increase in US oil rigs, putting an end to three weeks of declines.

A slowdown in Eurozone’s economic activity along with a contraction in activity in Japan also added pressure on crude oil prices on Friday.

Why it matters: The number of oil rigs has declined significantly this year, down by 571 versus the year-ago levels, with a sharp downturn in demand for crude oil.

However, Baker Hughes said on Friday that the US oil rig count had risen by 11 to 183 last week, after declining for three consecutive weeks.

Sentiment was also hit by the Eurozone reporting a drop in the purchasing managers index to a two-month low of 51.6 for August. Meanwhile, services activity in Japan also contracted in August, with the au Jibun Bank services PMI slipping to 45.0 versus a reading of 45.4 in July.

Investors also remained worried about the resurgence of covid-19 infections in some parts of Europe impacting the energy-demand outlook.

Amid these concerns, investors shrugged off the Energy Information Administration’s report last week showing a decline of 1.6 million barrels in US crude inventories.

WTI (West Texas Intermediate) crude for October delivery declined 1.1% to settle at $42.34 per barrel on the NYMEX (New York Mercantile Exchange). The global benchmark Brent crude for October lost 1.2% to end at $44.35 per barrel. For the week, US crude gained 0.1%, while Brent lost 1%.

In other energy commodities, natural-gas futures for September climbed 4.1% to settle at $2.488 per million British thermal units on Friday, notching a weekly gain of 3.9%.

September gasoline slipped, however, by 1% to $1.2841 a gallon, while September heating oil declined 3.1% to $1.2080 a gallon.

What to watch: Traders will keep a close eye on economic reports and covid-19 numbers from several parts of the world, as well as any projections for the global economy. Markets await the EIA’s report on crude stockpiles scheduled for release on Wednesday.

Crude oil is expected to recover today from Friday’s decline, with the WTI trading higher by 0.3% to reach $42.45 in the Asian session.

European stocks will be in focus today, after closing the week on a lower note.

Context: European stocks ended lower on Friday, following disappointing economic reports from the region. Rising geopolitical tensions also weighed on the market.

Details: Data from the Eurozone released on Friday dented hopes of a rebound from the sharpest economic crisis on record. The region’s composite PMI declined to 51.6 in August versus July’s reading of 54.9. The IHS Markit composite PMI for France also slipped to 51.7 in August, after climbing to a two-and-a-half-year high of 57.3 in July.

The UK’s composite PMI for August, however, rose to 60.3 in August, from July’s reading of 57.0, exceeding market expectations of 57.1.

Geopolitical tensions continued to haunt investors, with no signs of a meeting between China and the US regarding the phase one trade deal between the world’s two largest economies.

Shares of Adyen fell around 4% on Friday after various top executives of the Dutch payment company sold their stakes.

The pan-European Stoxx 600 index closed lower by 0.15%, with most sectors trading in the negative zone. The European index notched a weekly loss of 0.8%.

London’s FTSE 100 also slipped 0.2%, while the German DAX 30 index declined 0.5% on Friday.

What to watch: With no major economic data due for release today, investors will keep an eye on developments in the US. Markets will continue to monitor the covid-19 numbers, with total cases surging to 23.3 million globally.

Other Markets: US indices trading closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.69%, 0.34% and 0.42%, respectively.

Turkey’s tourist arrivals and total motor vehicles production, Mexico’s mid-month inflation rate as well as the US Chicago Fed national activity index