WTI Futures Slump 8% as Traders Reassess Demand Outlook

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange slumped to the lowest levels in more than two months Tuesday under pressure from a rebounding U.S. dollar and extended losses in equity markets while traders look to the shoulder season, traditionally a period of weak demand for crude and oil products during refinery maintenance and when driving demand wanes after Labor Day, further clouded by the COVID-19 pandemic.

Demand uncertainty was reinforced this weekend as Saudi Arabia reduced its official selling price for its Arab Light crude for October, in particular to its main Asian markets.

The volume of crude oil imported by China fell 7.4% in August to 11.18 million barrels per day (bpd) after holding steady near a record high 13 million bpd in the prior two months, according to China's General Administration of Customs. Analysts note Beijing has been aggressively stockpiling crude oil in recent months, taking advantage of arbitrage opportunities for cheap U.S. crude shipments in May and June. With the steep price discount announced by Saudi Arabia over the weekend, crude shipments from the United States into China now look less attractive.

Saudi Aramco has also lowered its export price for the United States and European Union, 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 domestic crude demand between 1.5 million bpd and 2 million bpd.

Markets continue to monitor the latest flareups of coronavirus cases in the United States and elsewhere and their potential effect on fuel demand and mobility trends. High-frequency data in the United States show gasoline demand around 8% to 10% below last year after narrowing the gap during the summer months. Data from the Energy Information Administration shows implied gasoline demand down 14% in 2020 through August, while 8.9% below year ago during the four weeks ended Aug. 30.

In other markets, major U.S. stock indexes extended their recent declines into the fifth straight session Tuesday with the NASDAQ leading the selloff as investors worry about stretched valuations. Late afternoon, Dow Jones Industrials plunged more than 600 points to 27,524 and the S&P 500 was down more than 2.5% on the session.

Remarks by U.S. President Donald Trump on Monday, threatening to "decouple" the U.S. economy from China, added further market jitters. In a tit-for-tat threat, China's Global Times Editor-in-Chief Hu Xijin said Tuesday China would sanction senior U.S. officials who visit Taiwan and U.S. companies with ties to the officials.

In crude markets, West Texas Intermediate for October delivery plunged more than $3 to settle at $36.76 barrel (bbl), the lowest settlement on the spot continuous chart since the middle of June. The international crude benchmark Brent November contract dropped $2.23 to settle below $40 bbl at $39.78, also a better-than 2-month spot low.

NYMEX ULSD October futures extended declines into the fourth straight session Tuesday, down 7.47 cents or 6.5% to a $1.0768 gallon nearly 2-1/2 month low on the spot continuous chart. The October RBOB contract declined 7.17 cents to a $1.1028 gallon better-than two-month spot low.

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

Liubov Georges