Oil futures tumbled on Tuesday in a deepening rout fuelled a day earlier after Saudi Aramco caught traders off guard by moving aggressively to cut prices for crude shipments to Asia.
Tough words from US President Donald Trump on distancing the US and China economies also unnerved investors at a time of a darkening outlook for energy demand amid rising coronavirus infections around the globe.
Assurances from Saudi King Salman and Russian President Vladimir Putin on continued efforts to stabilise the market did little to arrest the retreat.
Sizeable price drops
International benchmark Brent tumbled by more than 4% to around $40.30 per barrel in afternoon trading in London, while US West Texas Intermediate (WTI) plunged by more than 6% to fetch around $37.30 per barrel.
Nearing 3pm in London on Tuesday prices had dived even lower, with Brent at about $39.85 and WTI at $36.72.
It was the fifth consecutive session of decline by the two benchmarks.
Saudi state behemoth Aramco reduced its key Arab Light grade of crude by a larger-than-expected amount for supplies to Asia, its main market. It also cut pricing for US buyers in an effort to help boost sales for October.
The world's largest oil company cut the October formula prices for Asia-bound shipments of its flagship Arab Light crude by $1.40 per barrel from the previous month.
It was the steepest monthly price reduction to Asian customers in five months as worries resurfaced about the continued impact of the Covid-19 pandemic on demand.
Aramco’s decision came after oil futures had plunged by more than 3% on Friday, posting their biggest weekly drop since June amid growing fears of slow economic recovery around the globe.
Other leading Opec producers, including Iraq and the United Arab Emirates, normally take their cues from Aramco in deciding selling prices to key customers.
The recent price weakness came after Brent soared to $46 per barrel early last week on hopes of improving demand arising from a pick-up in global economic activity following the easing of lockdowns imposed in the wake of the pandemic. Worries have now surfaced amid rising levels of reinfections.
Global crude inventories are still bulging despite the Opec+ supply cuts and economic stimulus packages by leading economies to counter the impact of the pandemic.
Lockdown concerns linger
Opec and its allies including Russia, a group known as Opec+, eased supply curbs from August to 7.7 million barrels per day after sensing a steady price recovery since coronavirus-linked historic lows in April.
Demand has plunged this year after the coronavirus forced governments to lock down economies, airlines to cancel fights and workers to stay at home.
Trump on Monday again raised the idea of separating the US and Chinese economies, also known as decoupling.
“So when you mention the word decouple, it’s an interesting word,” Trump told a Labor Day news conference at the White House in which he vowed to bring jobs back to America from China.
“We lose billions of dollars and if we didn’t do business with them we wouldn’t lose billions of dollars. It’s called decoupling, so you’ll start thinking about it.’’
Trump has made getting tough on China a key part of his campaign for re-election on 3 November. He has accused his Democratic opponent, Joe Biden, who leads in most opinion polls, of being soft toward Beijing.
The Saudi and Russian leaders talked on the phone on Monday, with King Salman expressing “satisfaction over the increasing trade exchange between the two countries, stressing the constructive role of the Russian Federation in Opec+ in achieving stability and balance in the oil market".
Putin highlighted the “fruitful co-operation with Saudi Arabia in the field of energy".