Vijay Valecha, Special to Zawya, Dated 7 Sep 2020
Following a week of losses, oil prices continued the decline on Monday, on the back of developments in the Middle East and Asia, and also on concerns that road-fuel demand might fall in the US.
After shedding 6.5 per cent last week, prices sustained the downtrend as Saudi Arabia made its deepest monthly price cuts to supply for Asia in five months and uncertainty over Chinese demand clouds the market's recovery.
Brent crude was trading at $41.95 a barrel, down 71 cents or 1.7 per cent, by 1020 GMT, after earlier sliding to $41.51, its lowest since July 30. West Texas Intermediate U.S. crude skidded 72 cents, or 1.8 per cent, to $39.05 per barrel after hitting $38.55, its lowest since July 10.
"The decrease was interpreted by the markets as a sign that the demand recovery in the region home to the second and third largest oil consumers are running out of steam," said Rystad Energy analyst Paola Rodriguez Masiu.
Masiu said the oil market sentiment has turned sour. "We don't see oil prices bouncing back anywhere near to the $50 per barrel level anytime soon unless Opec+ decides to deepen the current cuts. Although ideal, we find this scenario unlikely."
Instead, the alliance will likely focus on ensuring compliance with the implementation of the current agreed cuts, exerting maximum pressure on countries failing to comply. Which in itself is not an easy task either, Masiu noted.
"For the oil market, September is the month of the delayed 'summer blues.' Traders had been happy to support prices throughout the last months, ignoring worrying signals that the oil demand's recovery would be slowed. Yet the slowdown is now starting to be more evident than ever and these two first weeks of September are weeks of sobering up to the reality," he said.
"The mood has turned somewhat pessimistic in the second half of last week and the immediate risk is skewed to the downside," said oil broker PVM's Tamas Varga.
The world's top oil exporter, Saudi Arabia, cut the October official selling price for Arab Light crude, that it sells to Asia, by the most since May.
China, the world's biggest oil importer which has been supporting prices with record purchases, slowed its intake in August and increased its products exports, customs data showed on Monday.
"If China does not boost again its oil imports soon, this could be interpreted as a warning sign that even heavy industry-propelled economies, that traditionally come back more quickly than others in times of crisis, are feeling the strain," added Rystad Energy analyst Masiu.
"There are so many uncertainties with regard to the Chinese economy and their relationship with key industrialised countries, with the US and these days, even Europe," Keisuke Sadamori, director for energy markets and security at the International Energy Agency, was quoted as saying.
The Labour Day holiday on Monday marks the traditional end of the peak summer demand season in the United States and that renewed investors' focus on the current lacklustre fuel demand in the world's biggest oil user. Oil is also under pressure as US companies increased their drilling for new supply after the recent recovery in oil prices.Source: