Oil prices edge lower on oversupply concerns; eurozone PMIs help

Investing.com-- Oil prices slipped slightly lower Tuesday, with continued oversupply concerns partially tempered by solid activity data in the eurozone.

At 04:35 ET (08:35 GMT), Brent Oil Futures expiring in November fell 0.4% to $66.33 per barrel, while West Texas Intermediate (WTI) crude futures also edged down 0.3% to $62.09 per barrel.

Eurozone PMIs offer growth optimism

Eurozone business activity grew at its fastest pace in 16 months in September, a survey showed Tuesday, raising hopes for increased growth in this important energy consuming region.

The HCOB Flash Eurozone Composite Purchasing Managers’ Index, compiled by S&P Global, edged up to 51.2 in September from 51.0 in August, marking the ninth consecutive month of growth. PMI numbers above 50.0 indicate growth in activity, while those below that level point to a contraction.

Services drove the overall expansion, with the sector’s PMI rising to 51.4 from 50.5 in August - the highest reading in nine months and comfortably ahead of the Reuters poll estimate for no change. However, manufacturing lost momentum with its headline index dropping into contraction territory at 49.5 from 50.7 in August.

The equivalent data for the U.S. is due later in the session, and is expected to slowing slowing economc growth.

Global oversupply concerns

However, crude prices still fell Tuesday as a preliminary agreement reached between Iraq and Kurdish regional governments to restart an oil pipeline added to oversupply concerns. 

The breakthrough will allow exports of about 230,000 barrels per day to resume from Iraqi Kurdistan that have been suspended since March 2023.

This followed Monday’s announcement by Iraq that it has increased oil exports under an OPEC+ agreement.

Overall, the global oil market is bracing for elevated supply, which would depress prices. 

In its latest monthly report, the International Energy Agency said world oil supply would rise more rapidly this year and a surplus could expand in 2026 as OPEC+ members increase output and supply from outside the group grows.

Fresh sanctions against Russia loom

Offering a degree of support, the European Union is preparing a fresh sanctions package aimed at tightening restrictions on Russia’s energy exports. 

The measures are expected to target liquefied natural gas imports and penalise intermediaries in third countries that facilitate Russian trade. 

Washington has stepped up pressure on allies, urging higher tariffs on goods from China and India in response to their continued purchases of Russian crude.

These steps could strain global supply chains if enforcement proves effective.

Additionally, at the United Nations on Monday, a broad coalition of countries backed the formal recognition of a Palestinian state, a step opposed by Israel and the United States. 

The diplomatic rift added to uncertainty across the Middle East, a region that accounts for a third of the world’s crude supply.

Meanwhile, Ukraine has intensified drone strikes on Russian energy infrastructure, damaging refineries and forcing the suspension of loadings at a key terminal earlier this month. 

The attacks likely highlight the vulnerability of Russia’s export routes, raising questions over whether it can sustain current output levels.

Ayushman Ojha contributed to this article