NEW YORK (BLOOMBERG, REUTERS) - Oil extended its biggest decline in almost three months after Saudi Arabia cut its October selling prices as increasing doubts over the strength of a demand recovery and a resurgence of Covid-19 cases in several countries soured market sentiment.
Futures in New York fell 1.2 per cent, after plunging 7.6 per cent on Tuesday (Sept 8) as Brent crude settled below US$40 a barrel for the first time since June 15.
US West Texas Intermediate (WTI) crude settled down US$3.01 or 7.6 per cent, at US$36.76, earlier hitting lows not seen since June 15. Brent crude fell US$2.23, or 5.3 per cent, to US$39.78 a barrel.
Both oil benchmarks are below trading ranges that had persisted since August. Brent fell for a fifth day and has lost more than 10 per cent since the end of August.
Labour Day weekend marked the end of US summer driving season when petrol demand is greatest, compounding both a supply and demand problem in the market, according to Bob Yawger, director of energy futures at Mizuho.
"With refiners dropping run rates in the coming weeks as turnaround season begins, crude storage is going to climb even higher than near historic highs," Mr Yawger said.
An exodus of speculative net long positions on crude oil is exacerbating the selloff, he added.
"The speculative community is bailing at once and the herd mentality is destroying the price of oil," said Mr Yawger.
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 of softening demand.
"The Saudi price cuts announced on Sunday made WTI unattractive to Asian buyers," said Colorado-based energy analyst Phil Verleger of PK Verleger.
Asia's stalling demand recovery, the end of the US summer-driving season and increased supply from Opec and its allies signal a bleak short-term outlook for oil prices. Both benchmarks are trading in a pattern known as contango, where the most immediate prices are far below those for supply contracts in later months.
Market signals point to more downside risk for oil prices. The difference between the two nearest December contracts - a closely watched gauge of market strength - weakened for both Brent and WTI to their largest contango structure since May, pointing to concerns of oversupply.
The widening contango combined with a slump in tanker rates, may also encourage traders to seek floating storage. Storing crude at sea has become profitable again for northwest Europe and the Mediterranean, shipbroker and exchange data compiled by Bloomberg show. At the same time, oil traders have begun seeking out available US onshore storage, according to The Tank Tiger, an independent brokerage and consulting clearinghouse.
Brent crude's break below US$40 a barrel follows two months of the global oil benchmark holding largely between US$42 and US$45 a barrel. The coronavirus pandemic is still raging and Bank of America Merrill Lynch said it will take three years for global oil demand to recover from Covid-19, assuming there is a vaccine or a cure.
Meanwhile, only four of 10 Asian refiners surveyed by Bloomberg said they would be trying to buy more Saudi Arabian crude after the kingdom cut pricing for October as consumption remained below pre-coronavirus levels. Abu Dhabi is also cutting official crude pricing for October, sending a further bearish signal for oil.
President Donald Trump announced an expanded ban on offshore oil development near the coasts of Florida and the southeast U.S. as he made a case for his environmental record in the must-win Sunshine State.