Oil prices fell on Monday as Saudi Arabia made the deepest monthly price cuts for supply to Asia in five months and uncertainty over China’s oil demand cloud oil markets’ recovery.
Brent crude LCOc1 was at $42.04 a barrel, down 62 cents or 1.4% by 0859 GMT, after earlier sliding to $41.51, the lowest since July 30.
U.S. West Texas Intermediate crude CLc1 skidded 63 cents, or 1.6%, to $39.14 a barrel after earlier dropping to $38.55, the lowest since July 10.
The world’s top oil exporter Saudi Arabia cut the October official selling price for Arab Light crude it sells to Asia by the most since May, indicating demand remains weak. Asia is Saudi Arabia’s largest market by region.
“The mood has turned somewhat pessimistic in the second half of last week and the immediate risk is skewed to the downside,” said oil broker PVM’s Tamas Varga.
China, the world’s biggest oil importer which has been supporting prices with record purchases, slowed its intake in August and increased its products exports, according to customs data on Monday.
“There are so many uncertainties with regard to the Chinese economy and their relationship with key industrialized countries, with the U.S. and these days, even Europe,” Keisuke Sadamori, director for energy markets and security at the International Energy Agency, told us.
“It’s not such an optimistic situation – that casts some shadow over the growth outlook.”
The Labour Day holiday on Monday marks the traditional end of the peak summer demand season in the United States and that renewed investors’ focus on the current lacklustre fuel demand in the world’s biggest oil user.
Oil is also under pressure as U.S. companies increased their drilling for new supply after the recent recovery in oil prices.
U.S. energy firms last week added oil and natural gas rigs for the second time in the past three weeks, according to a weekly report by Baker Hughes Co (BKR.N) on Friday.
However, hopes for potential COVID-19 vaccines lend support to prices after Australian officials said they expected to receive their first batches of the vaccines in January, and said the vaccines could offer “multi-year protection”.