The battle against inflation could receive a boost – if a big fall in global oil costs is sustained.
Brent crude futures fell by 4% on Tuesday to levels not seen since July on the back of data that suggested demand would continue to slide in China – the world’s second biggest economy.
Brent was trading at $81 a barrel while US crude also slid to $77, registering declines above $3 for each.
It left Brent futures on track to reach the market close below $84 a barrel for the first time since prices spiked in the wake of the deadly attack on Israel by Hamas on 7 October.
Analysts said that the prospect for a wider conflict in the Middle East remained a concern for the oil outlook.
A set of scenarios published by the World Bank recently had warned that a serious escalation, taking in major oil-producing nations, risked a spike north of $150 a barrel.
But its base case for oil prices next year is around the current level.
Prices were first lifted at the end of June, from around the $72 level, by production cuts implemented by Saudi Arabia and Russia.
Those output curbs are set to remain in place until the end of the year and helped take Brent upwards towards $100 at one stage, placing a renewed strain on drivers at the fuel pumps in the process.
But downside pressure on oil has come from the downturn in China’s economy – dented severely by domestic troubles and plunging demand for its exports in the West.
Updated forecasts for refinery activity in China suggested lower volumes were expected throughout November and December, placing further downwards pressure on prices.
OANDA analyst Craig Erlam said: “Traders will remain on high alert for signs of a wider conflict emerging in the (Middle East) region that could disrupt supplies, but it seems those fears are subsiding.”
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Declining oil prices will be welcome in Western economies as they continue to battle the effects of inflation.
Some economists have warned that a fresh surge in oil prices risks a third wave for the inflation problem.
Price growth was first stoked by economies reopening after COVID and then by the fallout from Russia’s invasion of Ukraine.
Higher oil costs make not only transportation costs more expensive but also vast swathes of factory output.