Oil prices take hit on weak demand

Abu Dhabi: Oil markets were given a fresh reminder of the challenges that still lie ahead this year, as prices took a tumble recently as the market continues to struggle with demand recovery.

Prices on Friday saw Brent closing on $42.66, falling down from the mid-$40 range, with West Texas Intermediate (WTI) also falling below $40 at $39.77.

“The oil market has enjoyed five months of solid gains, but oil prices kick off September on a weak note,” said Paola Rodriguez-Masiu, senior oil markets analyst at Rystad Energy. “During the first week of this month, the Brent benchmark is set to register the biggest weekly decline since early June on concerns about weaker demand and fears of supply increases.

“Prices were also weighed down by the weaker-than-expected jobs recovery and the spillover effects of a sharp sell-off of tech stocks, caused by general higher-level worries about the recovery of the US economy as a whole.”

Also Adding to the oil market’s pressure was the worry of increasing supply from OPEC+ producers.

“The weekly price decline exposes how vulnerable the market currently is, having to deal not only with a fragile demand recovery but also with the threat of supply coming back quicker than anticipated due to the amounting economic pressure in OPEC+ economies,” said Rodrigue-Masiu.

Ole Hansen, head of commodity strategy at SAXO Bank, said prices could find themselves trading in the low $40 range with the outlook for higher prices later this year not looking solid.

“From a trading perspective the break below the uptrend from June may signal a prolonged period of sideways trading with the downside risk initially limited to the low 40’s.

“An extended stock market correction and/or further dollar strength may together with negative Covid-19 developments pose the biggest threat to our expectations for higher oil prices towards the end of the year and into 2021,” he added.