Oil spill amid signs of US economic slowdown

Prices of oil plummeted at the beginning of the trading session on Thursday from weak US employment and business activity data, which points to the fact that the world's largest consumer of oil is witnessing a cooling in the economy.

By 0030 GMT, Brent crude futures dipped 30 cents, or 0.34 per cent, to $87.04 a barrel, while US West Texas Intermediate (WTI) crude futures dropped 32 cents, or 0.38 per cent, to $83.56. Reduced activity due to the US Fourth of July holiday also had an effect on the market.

Recent data has contributed to fears that the US economy is losing momentum. First-time applications for unemployment benefits rose last week and the number of people on jobless rolls hit a 2-1/2-year high through late June. The ADP Employment report showed private payrolls increased by 150,000 in June; however this is below the 160,000 consensus and May's 157,000 rise.

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As if the economic worry did not have enough variables, the ISM Non-Manufacturing Index, which is a barometer of activity in the US service sector, fell to a four-year low of 48.8 in June, far below the consensus of 52.5, driven by a steep decrease in orders.

While that is weaker in terms of economic data, analysts indicate that this may actually strengthen the case for the Federal Reserve to cut interest rates, together with lower rates that can prompt demand for enhanced oil markets.

"The direction of recent data conforms to the Fed's easing bias," ANZ Research analysts said in a note. "A slowdown in growth momentum will support disinflationary impulses in coming months, paving the way for the Fed to cut rates."