Oil prices still falling on poor demand and virus flare-ups

London — Oil fell below $42 a barrel on Tuesday, its fifth session of decline, pressured by concerns that a recovery in demand could weaken as coronavirus infections flare up around the world.

Coronavirus cases rose in 22 of the 50 US states, a Reuters analysis showed on the Labour Day holiday weekend. New infections are also increasing in India and Britain.

Brent crude fell 50c, or 1.2%, to $41.51 a barrel at 8.18am GMT. US West Texas Intermediate (WTI) crude dropped $1.05, or nearly 3%, to $38.72.

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 stuttering.

“The combination of coming out of summer peak driving season in the US, which is a seasonal factor, has refocused the market’s attention on whether the demand recovery is strong enough — and clearly there are some doubts, as Aramco’s price move has demonstrated,” said Lachlan Shaw, National Australia Bank’s head of commodity research.

Both oil benchmarks have dropped out of the ranges they were trading in throughout August. Brent has fallen almost 8% since the end of August.

Still, oil has recovered from historic lows hit in April, thanks to a record supply cut by oil cartel Opec and allies (Opec+). The producers are meeting on September 17 to review the market.

Crude has also found support from a weaker dollar, though the US currency was up on Tuesday. The market could rally beyond $45 later this year, said Norbert Rücker, head of economics at Swiss bank Julius Bär.

“Fundamentally, things have not changed,” he said. “Demand is recovering, supply remains constrained, and the storage overhang is slowly disappearing.” 

Reuters