Oil Futures Edge Down Further, Saudi Aramco Slashes Oil Prices For October Amidst Plunging Oil Demand

OIL

Oil was down on Monday morning Asia because investors reacted to the massive price cut for supply to Asia.

Brent oil futures edged down 0.12% to $42.29 by 9:54 PM ET (2:54 AM GMT) and WTI futures slid 1.01% to $39.37, falling below the $40-mark.

Saudi Arab slashed oil prices for sales in October, an indication the world’s biggest exporter sees fuel demand wavering amid more coronavirus flare-ups around the globe.

The kingdom’s Saudi Aramco slashed its key Arab Light grade of crude by a larger-than-expected amount for shipments to Asia, its main market. It lowered pricing for U.S. buyers as well.

The state producer of the kingdom, Saudi Aramco, deducted its key Arab Light grade of crude by a more-than-expected amount for shipments to Asia, its main market. It also reduced pricing for U.S. buyers. Saudi Arabia made its biggest price cuts since May in its largest market by region, with fuel demand recovery hopes fading in one of the world’s top oil exporters over the still-ongoing COVID-19 pandemic.

The number of COVID-19 cases around the world continues to increase, with almost 27 million cases as of September 7, as per Johns Hopkins University data.

Oil demand around the world plunged because of pandemic

Global oil demand is being destroyed, with the pandemic forcing people around the world to remain indoors and avoid all unnecessary travel.

Oil demand wiped out this year after the pandemic forced governments to shutdown economies, airlines to cancel flights and workers to stay at home. In April Saudi Arabia, Russia and other OPEC+ producers agreed to cut output by almost 10 million barrels a day, roughly 10% of global supply, to bolster prices.

The ramifications for the oil market are enormous, with refiners, producers and even petrostates all facing skeptical futures. The most instantaneous set of data from America starkly illustrated the impact. The U.S. Energy Information Administration reported U.S. drivers consumed the least gasoline for at least 30 years, as normal life ground to a halt.

Against this backdrop, the Organization of Petroleum Exporting Countries and its allies agreed to cut production by 10 million barrels a day.

The demand recovery in China gives a slight relief

Those cuts and demand recovery in China have since helped oil prices more than double. But they’re still down around 35% this year. Brent crude fell to $42.66 on Friday, suffering its biggest weekly loss in almost three months as infection rates continue to climb in nations such as the U.S. and India.

Oil demand in China is said to have surged by 16.7% m/m to stand at 14.16 million bbl/d in July, which indicates the stability of its economic recovery. July’s demand figures too are higher than last year’s demand, reaching 12.83 million bbl/d. This is also 2.02 million bbl/d above our forecast for the month of July. Still, China’s stockpile of oil and refined products, which rose significantly during the price downturn in Q2-2020, continues to be high, and are expected to plunge at a slow pace.

The abovementioned factors are expected to cap the price rally during the month of September.

“Aramco understands the importance of China for the global oil market,” said Giovanni Staunovo, a commodities analyst with UBS Group AG. “The cut for October might help to support stronger imports from China over the coming months.”

Aramco slashed oil prices for US buyers, with a fall in demand

Aramco is cutting prices for U.S. buyers for the first time since April after Saudi oil exports to the country dwindled to the lowest in decades in August.

U.S. oil demand has now fallen to 14.4 million barrels a day, the lowest in data going back to 1990 and a drop of more than 30% from pre-crisis levels, government figures showed. In its short-term outlook, the EIA forecast the hit to oil demand will be 16.7 million barrels a day in the coming month. A number of U.S. refiners, including HollyFrontier Corp. and Marathon Petroleum Corp., slashed run rates by 30%.

Saudi Arabia usually sets the tone for pricing decisions by other Middle Eastern petrostates, including Iraq and the United Arab Emirates, the second- and third-largest producers in the Organization of Petroleum Exporting Countries.

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