By Adedapo Adesanya
For the first time in nearly three months, the international benchmark, Brent Crude, fell below $40 on Tuesday on the back of pressure from a stalling recovery in demand.
The oil futures lost $2.21 or 5.26 per cent to sell at $39.82 per barrel, while the US West Texas International (WTI) crude lost $3.01 or 7.57 per cent to trade at $36.76 per barrel.
After gaining in the past few weeks, crude demand has faltered as the coronavirus continues to rage in many parts of the world and the demand outlook remains uncertain.
Oil prices slumped to their lowest level since mid-June as rising COVID-19 cases around the world continue to raise concerns about the short-term demand outlook.
Jet fuel demand remains extremely weak because many people don’t want to fly during the ongoing pandemic. And no one knows for sure how long it will take to recover.
Equally, prices are affected by the end of the US summer driving season, lower Chinese imports and a stronger dollar.
In another sign that demand recovery was faltering, over the weekend, the world’s top oil exporter Saudi Arabia cut its official selling prices for crude oil for October.
According to analysts, it is never a good sign when the world’s leading oil exporter feels compelled to cut prices to draw buyers.
The Bank of America further contributed to the weak outlook as it noted that it will take three years for demand to recover from COVID-19, assuming there’s a vaccine or cure. The firm believes peak oil will come as soon as 2030 due in part to electric car proliferation.
This is coming at a time that planned production expansions by Organisation of the Petroleum Exporting Countries and its allies, OPEC+ threaten to add to an existing glut of crude.
Since the US benchmark crude plunged into negative territory in April for the first time on record, oil prices have staged a big comeback in recent months. WTI jumped nearly 90 per cent in May, and has posted monthly gains ever since.
The gains were on the back of record lows, but prices moved higher as international producers scaled back production in an effort to counteract the demand drop-off caused by the pandemic. But in recent sessions prices have begun to trend lower.
Rising US-China trade tensions, as well as production coming back online also pressured prices on Tuesday.
The market will be waiting from industry data from the American Petroleum Institute (API) and the Energy Information Administration (EIA) which will be released on Wednesday.
