Oil prices tumbled to a three-month low on Tuesday as fears grew that a resurgence in coronavirus cases around the world would hold back the recovery in energy demand.
Brent crude, the global benchmark, fell 5.9 per cent by late afternoon in London to trade at less than $40 a barrel for the first time since June. West Texas Intermediate, the US marker, shed more than 8 per cent to about $36 a barrel. Both measures are down almost 15 per cent since last week.
Analysts are concerned that the bounceback in crude consumption in recent months may be over. Monday’s Labor Day public holiday marked the end of America’s driving season, the traditional period for peak demand.
“Demand recovery at this point is certainly done,” said Stephen Schork, editor of oil market newsletter The Schork Report. “It’s a question of demand destruction. I think the entire oil complex is under threat right now.”
Earlier this year, governments imposed lockdowns to stem the spread of coronavirus, causing oil prices to plunge as airplanes were grounded and vehicles were kept off the roads. Brent dropped as low as $16 a barrel in April while WTI entered negative territory that month for the first time ever.
An uptick in global demand for crude in recent months, coupled with drastic cuts in output by the Opec cartel and other producers such as Russia, has helped prices recover. But analysts point out that the prospects for a further rebound have weakened just as oil supplies come back online.
Paul Horsnell, an analyst at Standard Chartered, said the fallback in prices suggested that many traders were “moving away from their earlier optimism” on how fast the pandemic would abate.
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The trend is especially visible in the US, the world’s biggest oil market, where oil demand has been flatlining since July, with petrol consumption last week down 7 per cent compared with a year earlier. The last time American drivers burnt so little fuel in late August was in 1998.
Analysts are not predicting an improvement in US demand anytime soon. “It looks like risk-off is the flavour of the moment,” said Roger Diwan, an analyst at IHS Markit.
“The weak state of fundamentals and the lack of any catalyst for improvement in the near term are resetting price expectations” after the summer, he said. “That goes for oil, but also to the broader market.”