Oil Futures Falter; Outlook Weak

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- In opening trade during the holiday-shortened week in the United States, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange dropped early Tuesday, with front-month West Texas Intermediate futures trading below $38 barrel (bbl) after Saudi Arabia's Aramco, the world's top oil exporter, cut official selling prices for its Arab light crude for October that is seen as a sign of a weakening global market.

Saudi Aramco on Sunday cut its export crude prices to Asia for the second month in a row, while also lowering most prices for exports to the United States and Europe. Saudi's OSPs to the United States were cut more aggressively than to Europe, likely an effort to shore up buying interest during the fall refinery maintenance season. Analysts project the upcoming maintenance season for U.S. refineries could cut crude demand by 1.5 million barrels per day (bpd) to 2 million bpd, further weighing on an already sluggish recovery for oil demand.

With the Labor Day weekend considered the end of the summer driving season, U.S. demand for gasoline is expected to ease in the coming weeks, another bearish factor for the oil market. This year, however, it remains unclear whether gasoline consumption would follow the seasonal pattern given the coronavirus impact on the reopening of schools and universities.

EIA data showed implied gasoline demand plunged 375,000 bpd or 4.1% during the final week of August to 8.786 million bpd, about 7.2% below the same week in 2019.

Also weighing on the oil complex, the U.S. dollar charged higher in overnight index trade to well above 93, supported, in part, by improving manufacturing and jobs data in the United States. The Department of Labor's non-farm payroll report for August showed the U.S. unemployment rate plummeted 1.3% from the previous month to a better-than-expected 8.2%, reinforcing the view the labor market is healing from the government mandated business closures enacted to slow the spread of the coronavirus pandemic during spring. U.S. initial unemployment claims for the week ended Aug. 22 dropped below 900,000 for the first time since March shortly after the pandemic was declared.

In early trading, the U.S. crude benchmark West Texas Intermediate for October delivery plunged more than $2, sinking below $38 bbl to $37.54 bbl, the lowest trade on the spot continuous chart since the last week of June. The international crude benchmark Brent November contract dropped $1.45 to $40.55 bbl, also a better-than two-month spot low.

NYMEX ULSD October futures extended declines into the fourth straight session early Tuesday, down more than 6.5 cents or 5.7% to a $1.0849 gallon nearly 2-1/2 month low on the spot continuous chart. The October RBOB contract declined about 5.35 cents to a $1.1232 gallon better-than two-month spot low.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges