Oil prices nudge up, but economic worries loom

Oil prices recovered some ground on Wednesday, boosted by a wider market pickup on positive news from China’s services sector, after three days of losses on fears about a weakening global economy.

Brent crude was up 15 cents, or 0.26 percent, at $58.41 a barrel by 0850 GMT, while U.S. West Texas Intermediate futures gained 24 cents, or 0.44 percent, at $54.18 a barrel.

U.S. data released on Wednesday showed manufacturing activity contracted in August for the first time in three years, while euro zone activity shrank for a seventh month.

Global markets rebounded on Wednesday after a private survey showed that activity in China’s services sector expanded at the fastest pace in three months in August as new orders rose, prompting the biggest increase in hiring in over a year.

China is the world’s second-largest oil consumer and largest importer.

But Donald Trump, U.S. president on Tuesday warned he would be “tougher” on Beijing in a second term if trade talks dragged on, compounding market fears that trade disputes between the United States and China could trigger a U.S. recession.

“The bullish bandwagon seen earlier this year will not be making another appearance,” Stephen Brennock of oil broker PVM said.

“Spearheading these dimming prospects (are) … cooling global economic activity and intensifying trade tensions. The world economy is slowing and nowhere is this pullback in activity more apparent than in the manufacturing sector.”

Citi cut its Brent forecasts for the third and fourth quarters by about $10 a barrel to $62 and $64 respectively, and expects the benchmark to fall to $53 by the end of 2020. Brent is about 23% lower than its peak for this year in April.

“Next year the curtailment of demand growth coming from lower GDP (gross domestic product) growth expectations and continuation of the U.S.-China trade war could shave more oil demand from the market,” Citi analysts wrote.