Oil prices plummeted again and hit their lowest level since June 25. Brent crude lost 5.5% to trade at $39.70. Futures for WTI crude oil fell in price by 7.6% to $36.76 per barrel. For the fifth trading session in a row, oil is getting cheaper and in general has already lost 12%. According to experts, prices may return to levels around $35 per barrel.
Amid this situation, oil refineries do not buy extra oil now. Many plants suffered huge losses due to the pandemic and cannot continue to work. As a result, many of them are leaving the market and there are huge unclaimed capacities.
Another reason for concern is the situation in India, which has been one of the main drivers of oil consumption growth in recent years. The coronavirus continues to spread in the country, and the situation is critical. DNB Markets experts warn that the decline may continue in September and October.
Despite the difficult situation, the OPEC+ countries are not going to change the terms of the deal. On the contrary, they are trying to gain as much market share as possible. Thus, Saudi Aramco this week lowered most of its October's oil prices for buyers in the United States, Asia, and Northwest Europe. By lowering oil prices, Saudi Arabia is trying to boost demand for its oil, analysts say.
A decrease in oil production will lead to a rise in the world oil supply, but the drop in prices suggests that the cartel members need to further reduce oil output.
The record volumes of Chinese crude oil imports, the return of cars to US roads, and a significant cut in production previously helped push prices up after the spring plunge. However, the Chinese companies have decreased their oil purchases since mid-July. China's crude oil imports fell by 7.4% in August from the previous month.
The spread between gasoline and WTI crude, a measure of the refining profitability, fell by 8% this month to $9.46 a barrel.
It seems that market participants "returned to reality" and realized that no wonders will happen. According to Eugene Weinberg from Commerzbank, growth in US gasoline demand has stalled, although analysts expected the opposite. In addition, demand has ceased to recover. Moreover, the oil reservoirs are overfilled.
Pressure on prices may only increase in the coming months, traders and analysts say. Unfortunately, there are no positive factors in the oil market now.
