By Adedapo Adesanya
The oil market dropped on Monday as a beating gripped the global stock markets, with Brent crude losing 51 cents or 0.66 per cent to $76.30 a barrel and the US West Texas Intermediate (WTI) crude down by 58 cents or 0.79 per cent to $72.94 per barrel.
Equities markets tumbled from Asia to North America to Europe on fear of US recession as investors fled riskier assets while wagering that rapid interest rate cuts by the Federal Reserve will be needed to drive US economic growth.
A weaker US payroll data for July had begun a sell-off on Friday when market bets for a US Federal Reserve September rate decrease had quadrupled to 50 basis points. The dismal news on Friday followed disappointing earnings reports from several top technology giants.
The market tumbling was limited by fears that Iran may retaliate the assassination of a Hamas leader in Tehran which may lead to a wider war in the Middle East.
Market analysts noted that traders are expecting Iran’s response to be short, making crude futures more vulnerable to fears of a US recession like those that affected markets on Monday.
Reuters reported that Israel and the US are prepared for a major regional escalation after Iran and its allies Hamas and Hezbollah promised to respond against Israel over the deaths of Hamas leader Ismail Haniyeh and a key Hezbollah military commander last week.
The US embassy in Lebanon has urged citizens to leave the country as soon as possible, further highlighting the risk of escalation in the region.
Slumping diesel consumption in China, the world’s biggest contributor to oil demand growth is also weighing on oil.
Meanwhile, the Institute for Supply Management (ISM) said on Monday that services sector activity rebounded from a four-year low in July with rising orders and employment, easing recession fears.
Its non-manufacturing purchasing managers (PMI) index rose to 51.4 from 48.8 in June, ahead of expectations for 51.0. A PMI reading above 50 indicates growth in services, which accounts for more than two-thirds of the U.S. economy.
The Dollar index, which measures its performance against a basket of currencies, fell 0.53 per cent to 102.60. A weaker greenback makes oil cheaper for holders of other currencies.