Crude futures came under renewed selling pressure on Monday after Saudi Arabia moved to slash prices for shipments to its key Asian market in a sign of waving demand for oil.
Saudi Aramco reduced its key Arab Light grade of crude on Sunday 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.
Tough end to week
Aramco’s decision came after oil futures 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.
International benchmark Brent was hovering around $42 per barrel in Asian trading on Monday, down by more than 1.5%, while US West Texas Intermediate (WTI) was struggling to keep above $39 per barrel, down by almost 2%.
“With the Labour Day (holiday) in the US officially marking the end of the summer driving season, investors are also facing up to the fact that demand has been lacklustre, while inventories remain at elevated levels,” analysts at ANZ bank said in a note.
The recent price weakness came after Brent shot up past $46 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.
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.