Oil futures tumbled on Tuesday, with Brent dropping below $40 a barrel for the first time since June and US crude off more than 8 per cent, after Saudi Arabia cut its October selling prices amid a flare-up of coronavirus cases around the world.
Coronavirus infections are rising in India, Great Britain, Spain and several parts of the United States, where the infection rate has not come under control for months. The rebound in illnesses could weaken the global economic recovery and sap fuel demand.
US West Texas Intermediate (WTI) crude dropped $3.42 or 8.6 per cent, to $36.35 at 11:33 AM EDT (1533 GMT), lowest since June 15. Brent crude fell $2.46, or 5.9 per cent, to $39.55 a barrel.
Both oil benchmarks have dropped below the ranges they were trading in throughout August. Brent is falling for a fifth day and has lost more than 10% since the end of August.
“The streak of losses is driven by a stalling crude demand outlook for the rest of the year,” said Paola Rodriguez-Masiu, analyst at Rystad Energy.
On Monday, crude fell after Saudi Arabia`s state oil company Aramco cut the October official selling prices for its Arab light oil, a sign demand may be softening.
“The Saudi price cuts announced Sunday made WTI unattractive to Asian buyers,” said Colorado-based energy analyst Phil Verleger of PK Verleger LLC.
Still, oil has recovered from historic lows hit in April, thanks to a record supply cut by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+. The producers are meeting on September 17 to review the market.
Crude has also found support from a weaker US dollar, although the U.S. currency was up on Tuesday. The market could rally beyond $45 later this year, said Norbert Ruecker, head of economics at Swiss bank Julius Baer.
“Fundamentally, things have not changed,” he said. “Demand is recovering, supply remains constrained, and the storage overhang is slowly disappearing.”