Oil dips amid concern about demand

Tokyo — Oil prices slipped on Tuesday as worry over slow recovery in global fuel demand was reinforced by warnings by major oil producers, but short-covering ahead of a meeting later this week of Opec and its allies, known as Opec-plus, limited losses.

Brent crude was down 5c, or 0.1%, at $39.56 a barrel by 4.07am GMT, while US West Texas Intermediate (WTI) crude futures were down 3c, or 0.1%, at $37.23 a barrel.

Both contracts ended slightly lower the previous day.

“Sentiment in oil markets remained gloomy due to bleak demand outlook by oil producers and as a resurgence in Covid-19 cases in many countries fuelled concerns over slower pickup in global fuel demand,” said Chiyoki Chen, chief analyst at Sunward Trading.

“Brent and WTI are likely to stay between $35 and $40 a barrel until US demand for heating oil starts picking up as the peak driving season has ended,” he said.

Big oil industry producers and traders are forecasting a bleak future for worldwide fuel demand, due to the pandemic’s assault on the global economy, with Opec downgrading its oil demand forecast and BP citing demand might have peaked in 2019.

World oil demand will tumble by 9.46-million barrels a day in 2020, Opec said in a monthly report, more than the 9.06-million barrel a day decline expected a month ago.

Worry over an increase in global supply after Libyan commander Khalifa Haftar committed to ending a months-long blockade of oil facilities also dented risk appetite.

“Still, some investors moved to cash in profitable short positions ahead of the Opec-plus meeting,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

Investors look to the joint ministerial monitoring committee by Opec-plus on Thursday to discuss compliance with deep cuts in production, though analysts do not expect further reductions to be made despite Brent prices falling below $40 a barrel in recent days.

The concern over supply disruptions in the US from an impending storm also provided some support.

Energy companies, ports and refiners raced on Monday to shut down as Hurricane Sally grew stronger while lumbering towards the central US Gulf Coast, the second significant hurricane to shutter oil and gas activity in the past month.

“Still, the support is limited as oil prices came off quickly after the first hurricane passed, with energy companies being able to make proper preparations ahead of time,” Sunward’s Chen said.

Meanwhile, China’s crude oil throughput in August rose from a year ago, reaching the second-highest on record, as refineries worked to digest record imports brought in earlier in 2020.

Reuters