Saudi Price Cut, Demand Slowdown Weaken Oil Market

By Adedapo Adesanya

Oil prices opened the new week with a downward movement on Monday on the back of news that Saudi Arabia made the deepest monthly price cut for supply to Asia in five months.

The international benchmark, Brent crude, dropped 65 cents or 1.52 per cent to sell for $42.01 per barrel, while the United States West Texas Intermediate (WTI) crude fell 70 cents or 1.76 per cent to trade at $39.07 per barrel.

Despite supply cut by the Organization of the Petroleum Exporting Countries (OPEC) and their allies, known as OPEC+, and government efforts, crude oil glut still remains and this has led refiners to reduce output.

As a result, the world’s top oil exporter, Saudi Arabia, cut the October official selling price for Arab Light crude it sells to Asia to a level last seen in May.

This happened as 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.

Oil demand has continued to be a key concern. Global oil demand could fall by 9-10 million barrels per day this year due to the coronavirus pandemic, according to projections.

The International Energy Agency (IEA) joined analysts saying that the pace of global oil demand recovery has stalled in recent weeks.

In an interview, Mr Keisuke Sadamori, Director, Energy Markets and Security at the IEA, said that global oversupply has yet to show strong signs of drawdowns.

In its Oil Market Report for last month, the IEA had downgraded its oil demand forecast for this year by 140,000 barrels per day compared to the estimate from the previous month’s report.

The IEA expected in the middle of August that crude oil demand this year would be 8.1 million barrels per day lower than it was in 2019.

The market will be waiting for the most recent assessment from the IEA in its next report scheduled to be released on September 15.

In August, the OPEC+ group eased production cuts to 7.7 million barrels per day after global oil prices improved from historic lows caused by the coronavirus pandemic cutting fuel demand. This new development might bring more problem for prices in the next few days.

Oil is also under pressure as US companies increased their drilling for new supply after the recent recovery in oil prices.