Weak US economic data adds to oil demand concerns

Brent’s price has felt some downward pressure as manufacturing activity in the world's top oil consumer contracted in November, signalling slower demand.

IMAGE: Oil pump jacks. Getty Images

The Manufacturing Purchasing Managers' Index (PMI) reading in the US, the world's largest oil consumer, came in at 48.2% in November, down from October’s 48.7%, the Institute for Supply Management (ISM) reported.

“Economic activity in the manufacturing sector contracted in November for the ninth consecutive month,” the ISM said.

The latest data pointed to weaker industrial activity in the US, heightening concerns over demand growth.

In China – the world’s second-largest oil consumer – manufacturing PMI came in at 49.2% last month, slightly higher than October’s 49% growth, market intelligence provider JLC reported, citing the country’s National Bureau of Statistics (NBS).

A PMI reading below 50 signals a contraction in manufacturing and is a key gauge of economic health, reflecting weaker production, new orders, and inventories. The data also underscores concerns that softer industrial activity could curb oil demand.

However, analysts note that sustained weakness in US manufacturing could prompt the Federal Reserve (Fed) to consider interest rate cuts to stimulate borrowing, investment and spending.

The US central bank is scheduled to meet in the upcoming two days to decide whether a final rate cut in 2025 is required.

Lower rates typically boost demand by making dollar-denominated commodities like oil more affordable for holders of other currencies, potentially offering some upside support to prices in the medium term.

By Aparupa Mazumder

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