By Yuka Obayashi
Oil prices took a hit on Wednesday, extending the previous day's more than 4% decline, as the market anticipates a resolution to the political conflict that has disrupted Libyan exports and worries about weakening global demand growth.
Crude oil futures for November dropped 28 cents, or 0.4%, to $73.47 at 0052 GMT after a 4.9% decrease in the previous session. U.S. West Texas Intermediate crude futures for October were down 31 cents, or 0.4%, to $70.03 after a 4.4% drop on Tuesday.
Both contracts reached their lowest levels since December due to signs of a potential agreement to settle the political dispute between rival factions in Libya, which led to a 50% cut in output and restricted exports.
"Selling pressure continued in Asia as expectations grew for a resolution to the conflict in Libya," explained Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd. "The market is also facing downward pressure due to concerns about weak fuel demand following lackluster economic data from China and the United States."
On Tuesday, Libya's two legislative bodies agreed to appoint a central bank governor together, potentially easing the fight for control over the country's oil revenue that sparked the current dispute.
Market sentiment was further dampened by data from the Institute for Supply Management, which showed that U.S. manufacturing activity remained subdued despite a slight improvement in August compared to an eight-month low in July.
In China, the world's largest crude importer, recent data indicated a decline in manufacturing activity to a six-month low in August and a slowdown in the growth of new home prices.
Weekly U.S. inventory data was delayed due to the Labor Day holiday on Monday. The American Petroleum Institute's report is expected at 4:30 p.m. EDT (2030 GMT) on Wednesday, while the Energy Information Administration's report will be released at 11:00 a.m. EDT (1500 GMT) on Thursday.
A preliminary Multibagger poll suggested that oil and gasoline stockpiles likely decreased last week, while distillate inventories probably saw an increase. [EIA/S][API/S]
Analysis:
In summary, the decline in oil prices was driven by the potential resolution of the political conflict in Libya, which could lead to a resumption of exports from the country. Additionally, concerns about sluggish global demand growth, highlighted by weak economic data from key players like China and the U.S., contributed to the downward pressure on prices.
Investors should keep an eye on further developments in Libya and monitor key economic indicators to gauge the health of global demand, as these factors will continue to influence oil prices in the near term.