Brent Dips Below $40 for 1st Time Since June
Brent oil dipped below $40/barrel on September 8 for the first time since June, as the recovery in fuel demand from record lows at the height of the Covid-19 pandemic shows signs of stalling.
Brent was trading at $39.72/b at time of press, down 5.5% from the closing price on September 7. Meanwhile West Texas Intermediate (WTI) had dropped 7.8% and was trading at $36.68/b. Both benchmarks have been losing value more or less steadily since the start of the month.
"Rising Covid-19 cases around the world continue to raise concerns about the short-term demand outlook," John Hardy, head of FX Strategy at Denmark's Saxo Bank, said in a research note. "To the list we can add the end of the US summer driving season, lower Chinese imports and a stronger dollar."
A further deterioration of ties between China and the US has further weighed down on prices, Paola Rodriguez-Masiu at Olso-based Rystad Energy commented. US president Donald Trump, who started a trade war with Beijing in 2018, said on September 7 he planned to "decouple" the US economy from China.
WTI has performed particularly badly because of a spike in Covid-19 cases after the Labour Day weekend in the US. "The cocktail of more Covid-19 infections and an expected decline in road fuel demand in the US is strong enough to put healthier WTI prices to sleep for a while until the hangover is over," Rodriguez-Masiu said.
Analysts at Dutch bank ING also pointed to Saudi Arabia's decision to cut its official selling price (OSP) for most crude grades for October.
"This is the first time since June that the Saudis have set this OSP at a discount to the Oman/Dubai benchmark," ING said. "Clearly this suggests that the market is not tightening as quickly as many had anticipated, with supply edging higher, and with demand clearly faltering."