Oil Prices Face Bearish Pressure as Weak Jobs Data Fuels Recession Fears

The oil market continues to decline as deeper cracks appear in the global economy. Oil prices have dropped further following weak jobs data, which signals a broader economic slowdown. This article examines fundamental and technical factors to explain why oil prices may not have yet found a bottom, but instead serve as a warning sign of what lies ahead. The technical trends show that the oil market remains under pressure and is likely to fall further.

Oil Price Collapse Signals Global Imbalances

Brent crude oil (BCO) dropped to $65.50 per barrel on Friday. The decline followed reports that Saudi Arabia may push to unwind its voluntary production cuts. This move involves reversing the second wave of cuts totalling 1.65 million barrels per day. Markets quickly priced in the risk of a supply surge. The uncertainty triggered selling pressure, and prices look poised to break lower.

The crude oil market has strong support at $60. A break below this level would confirm massive oversupply concerns and signal deeper market imbalances. Moreover, the timing of this breakdown is critical. The global economy is already slowing, and additional supply could worsen the situation. This drop in oil prices would put pressure on US shale producers.

If prices drop below $60, production cuts are likely. Shale economics rely heavily on price stability. A prolonged dip would trigger cost-cutting, layoffs, and reduced output. This response would reinforce the broader economic slowdown.

Moreover, the shift in OPEC+ strategy is not just about regaining market share; it represents a potential macroeconomic shock. The oversupply narrative may dominate headlines in the weeks ahead. However, oil’s breakdown is signalling something more serious.

Labor Market Data Confirms Recession Signals

Nonfarm Payrolls Miss and Unemployment Spike Raise Red Flags

The sharp decline in oil prices coincides with clear signs of labour market weakness. The chart below shows that the August Nonfarm Payrolls (NFP) disappointed with just 22,000 new jobs added. This was far below the 75,000 jobs expected. The miss confirms slowing momentum in employment growth.

Moreover, the unemployment rate rose to 4.3%, marking a clear increase in joblessness.

At the same time, continued claims are rising, showing workers are staying unemployed longer. The total number of unemployed now stands at 7.4 million. That figure now exceeds total job openings, which have dropped to 7.2 million.

Job Quality Metrics Mirror Economic Slowdown

The chart below shows that the temporary employment dropped to 2.5 million in August. Historically, this level is associated with recessions. Temporary jobs are often the first to go when companies prepare for slower demand.

On the other hand, layoffs and discharges are also in a visible uptrend, showing broad-based labour weakness.

The quit rate fell to 2.0%, its lowest level in recent years. This suggests workers no longer feel confident about switching jobs or finding better opportunities. As oil prices dropped and hiring slowed, the economy is flashing synchronized recession signals. The labour market no longer provides the cushion it did last year, just as crude prices are collapsing.

Services Sector Hints at Stagflation Risks

The ISM Services PMI rose to 52% in August, signalling overall expansion. New orders also improved, climbing to 51.4%. These figures suggest resilience in the services sector.

However, the ISM Non-Manufacturing Employment Index remains in contraction, aligning with weak labour data from the NFP report. Hiring is slowing, even as demand picks up.

The biggest concern lies in pricing pressure. The ISM prices subindex surged to 69.2%, highlighting persistent inflation in the services sector. The rising input costs continue to squeeze margins and consumer budgets. This stickiness in prices comes just as growth momentum fades. These figures increase the risk of stagflation with low growth and high inflation.

For the Federal Reserve, this creates a policy dilemma. If the Fed cuts rates to support jobs, it may reignite inflation concerns. On the other hand, keeping rates high could deepen the slowdown. The Fed may proceed with a rate cut in September, but persistent inflation in services will complicate future decisions.

Fed’s September Cut Is Likely, But Not Without Risks

The Fed is under growing pressure to ease policy. Weak job growth and falling oil prices give it more room to act. Brent crude has dropped to $65 per barrel, easing inflation risks. Lower energy prices remove a key barrier to rate cuts.

According to the FedWatch tool, there is an 89% chance of a rate cut in September. Preliminary revisions to jobs data may even support a 50-basis-point cut. The chart below shows that the 10-year yield has plunged to 4.09% and is approaching key support at 4.0%. This drop further supports the Fed rate cut outlook.

However, in September 2024, a Fed rate cut unexpectedly pushed yields higher as markets feared the Fed was losing control of inflation. A similar situation this year could trigger financial instability. Therefore, the Fed may cut in September, then pause to observe how inflation, labour, and global growth respond before taking further action.

Cracks in Financial Markets Undermine Stability

On the other hand, the financial conditions are tightening despite falling yields. The Chicago Fed National Financial Conditions Index dropped to -0.526. This reading signals growing stress in the system. It reflects tighter credit, reduced risk appetite, and contracting lending activity.

Moreover, bank liquidity is shrinking. Reserves at the Federal Reserve have dropped below $3.2 trillion, marking a critical decline and signalling worsening liquidity pressures. Despite falling bond yields and cheaper oil, cracks are forming beneath the surface.

Technical Breakdown in Oil Confirms Bearish Bias

WTI Oil Triangle Breakdown Hints at Deeper Oil Collapse

The long-term technical outlook for WTI crude oil (CL) is illustrated in the monthly chart below. It shows that prices are breaking down from a symmetrical triangle pattern. The initial breakout from this triangle occurred in April 2025. A strong rebound followed in May and June, but it stalled at the resistance zone near the $68 area. Since then, prices have continued to trend lower through August and September.

This pattern suggests that the next major move in WTI crude oil could be to the downside. A decisive break below $55 would likely trigger a sharp sell-off and confirm further weakness in oil prices.

The bearish outlook for WTI crude oil is also evident in the weekly chart, which shows strong consolidation within the long-term support zone of the $55 to $65 region. However, the price action remains bearish below the red dotted trendline, signaling continued downward pressure.

Ongoing uncertainty surrounding tariffs under President Trump, along with rising geopolitical instability in the Middle East, has triggered heightened volatility in the oil market. This volatility is reinforcing a negative bias in price sentiment.

Bearish Structure Points to Escalating Downside Risks

The negative bias in crude oil is also evident from the Brent crude chart, which shows that prices have consistently traded below the 50 SMA. When the price touches the black trendline, it reverses lower, forming long upper shadows on the weekly candles.

This pattern signals increased selling pressure at key resistance levels. It indicates that the next move in Brent crude is likely to be lower. Moreover, the RSI is trending below the 50 level, reinforcing the bearish momentum.

The short-term price action for crude oil can be analysed using the Brent crude oil chart, which shows the formation of a descending broadening wedge pattern. However, the negative price action over the past three months has created another triangle pattern within the wedge, forming a pivot resistance near the $69.50 level.

Brent crude failed to break above this resistance and has since resumed its downside move. A break below $65 in Brent crude would likely trigger another strong decline in prices.

Bottom Line

Brent crude’s drop below $66 is not just about supply. It reflects falling demand and rising fear across the economy. Weak job growth, high unemployment, and sticky inflation in services all point to recession risk. The $60 level is now a key threshold. A break below this will confirm deeper market stress.

Moreover, the Fed faces a tough choice. The cut in interest rates could help jobs, but may trigger inflation fears. On the other hand, holding rates high could worsen the slowdown. Therefore, the Fed may cut rates in September but will likely wait to assess the impact before making another cut. At the same time, financial cracks are growing, bank reserves are shrinking, and credit is tightening.

From a technical perspective, WTI and Brent crude show negative price action. A break below $60 in WTI and below $65 in Brent would trigger another wave of selling pressure.