European stock markets saw a sharp decline in response to underwhelming third-quarter results, erasing the gains made earlier this year. The disappointing corporate earnings have left investors cautious, with uncertainties about the economic outlook prevailing.
Oil Prices Hold Steady as Markets Await Key U.S. Economic Data
On Thursday, oil prices exhibited minimal movement in Asian trade as market participants awaited critical U.S. economic data set to be released later in the day. Concurrently, attention remained fixated on any developments in the ongoing Israel-Hamas conflict.
Over the past week, the crude oil markets have been marked by significant volatility, as traders grappled with the uncertainty surrounding the potential spill-over of the Israel-Hamas conflict into the Middle East region, which could disrupt crude oil supplies. Earlier diplomatic efforts had seemed to prevent an immediate escalation in the conflict.
However, with the Gaza strip enduring persistent bombings and Israel’s commitment to a ground assault, traders factored in a heightened risk of conflict escalation. As a result, oil prices surged by 2% on Wednesday, rebounding from a series of recent losses.
On Thursday, these gains momentarily halted, with Brent oil futures stabilizing at $90.06 per barrel, while West Texas Intermediate crude futures exhibited marginal movement at $85.39 per barrel by 21:09 ET (01:09 GMT). For the week, both contracts registered losses, driven by weaker economic data emerging from the euro zone, which has raised concerns about the strength of global oil demand this year, particularly in light of the potential of a recession within the bloc.
Furthermore, U.S. oil inventories expanded more than anticipated during the week ending October 20, with an increase in gasoline stockpiles hinting at a cooling in fuel demand. Nonetheless, U.S. oil stockpiles remained close to historic lows, as the nation increased oil exports to compensate for a supply gap stemming from Saudi Arabia and Russia.
U.S. GDP Takes Center Stage as Federal Reserve Meeting Nears
This week’s data indicated that U.S. business activity remained robust in October, potentially foreshadowing a robust third-quarter Gross Domestic Product (GDP) reading scheduled for later in the day. Expectations are that economic growth in the third quarter may have accelerated to 4.2%, underscoring the resilience of the world’s largest fuel consumer. A positive GDP reading could signify continued strong oil demand for the rest of the year.
However, the strength of the U.S. economy also grants the Federal Reserve more leeway to maintain higher interest rates for an extended period, a scenario that could have adverse implications for long-term economic growth. The central bank is widely expected to keep interest rates unchanged in its upcoming meeting next week. Nevertheless, Fed officials have not ruled out the possibility of at least one more rate hike this year, with interest rates anticipated to remain above 5% until at least the end of 2024.
The dollar witnessed increased demand this week in anticipation of the GDP data and the impending Federal Reserve meeting. Consequently, this also exerted downward pressure on oil markets, as a stronger dollar makes U.S. crude more expensive for international buyers.