Oil in New York on Friday closed below US$40 a barrel for the first time in a month as a selloff in broader markets exacerbated concerns over weakening demand following a sluggish summer driving season.
US benchmark crude futures tumbled nearly 4 percent on Friday, leading oil to post its worst week since June.
Tomorrow’s US Labor Day holiday would mark an informal end to the summer driving months in the nation and a customary drop-off in demand is looming, with refineries soon shutting for seasonal maintenance.
Photo: AP
“It’s a big psychological level,” said Bob Yawger, director of the futures division at Mizuho Securities USA. “Settlement below US$40 a barrel and the fact that we have turnaround season” creates conditions where it is “impossible make a bullish argument.”
West Texas Intermediate (WTI) for October delivery on Friday fell 3.9 percent to US$39.77 a barrel. The contract is down 7.4 percent for the week.
Brent crude for October delivery on Friday lost 3.2 percent to settle at US$42.66 a barrel, down 6.9 percent for the week.
Crude is off to a weak start this month as COVID-19 flare-ups in various parts of the world threaten a sustained rebound in oil consumption at a time when OPEC and its allies are returning oil to the market and easing historic output curbs.
The Russian minister of energy said that demand has returned to 90 percent of pre-pandemic levels, but limited travel and work from home arrangements are slowing down the recovery.
“This has been the summer driving season that wasn’t,” Again Capital LLC partner John Kilduff said. “The demand situation just continues to haunt this market.”
Meanwhile, key refineries are still recovering from storms that swept through the US Gulf Coast last week. Citgo Petroleum Corp and Phillips 66 Lake Charles refineries in Louisiana might be facing many more weeks of downtime as they wrestle with loss of power and damage caused by Hurricane Laura.
Plus, with profit margins so low, “refineries are not really in a rush to come back into service after Laura,” Tradition Energy director of market research Gary Cunningham said. “That is bearish to crude, because we do have some pretty good stockpiles right now.”
Despite six straight weeks of declines in crude stockpiles in the US, inventories are still at the highest seasonally in more than a decade, Energy Information Administration data show.
Physical markets are showing a mixed picture. Mars Blend, a high-sulfur crude, is trading at its highest premium to WTI futures in nearly two weeks.
Bakken crude for delivery at Clearbrook, Minnesota, fell this week to its largest discount to Nymex oil futures since early last month, before recovering slightly in recent sessions.
Additional reporting by staff writer
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