Oil Slides After Saudi Price Cuts
Oil prices dropped on Monday after earlier hitting their lowest since July as Saudi Arabia made the deepest monthly price cuts for supply to Asia in five months. Optimism about demand recovery also cooled amid the coronavirus pandemic.
Brent crude was at $42.21 a barrel, down by 1.1per cent, after earlier sliding to $41.51, the lowest since July 30.
United States West Texas Intermediate (WTI) crude skidded by 1.3per cent, to $39.26 a barrel after earlier dropping to $38.55, the lowest since July 10.
Nigeria, Africa’s largest economy, faces medium-term ûscal challenges, especially with respect to its revenues, which could snowball into a debt sustainability crisis, if not immediately addressed.
Crude oil prices have declined sharply in the mild market with Bonny Light crude oil price dropping from a peak of $72 per barrel on January 7, 2020, to below $20 in April 2020 as a result of which the $57 crude oil price benchmark on which the 2020 budget was based became unsustainable.
The world remains awash with crude and fuel despite supply cuts by the Organisation of Petroleum Exporting Countries (OPEC) and their allies, known as OPEC+, and government efforts to stimulate the global economy and oil demand. Refiners have reduced their fuel output as a result, causing oil producers such as Saudi Arabia to cut prices to offset the falling crude demand.
“Sentiment has turned sour and there might be some selling pressure ahead,” Howie Lee, an economist at Singapore’s OCBC bank, said.
China, the world’s biggest oil importer that has been supporting prices with record purchases, slowed its intake in August, according to customs data yesterday.
Abundant supplies, fears of loosening OPEC compliance, the end of the US driving season and stale long positioning have all combined to erode confidence in oil
“Abundant supplies, fears of loosening OPEC compliance, the end of the US driving season and stale long positioning have all combined to erode confidence in oil,” Oanda’s senior market analyst Jeffrey Halley said in a note.
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.
Last month, the OPEC eased production cuts to 7.7-million barrels per day after global oil prices improved from historic lows caused by the coronavirus pandemic cutting fuel demand.
Oil is also under pressure as US companies increased their drilling for new supply after the recent recovery in oil prices.