Crude oil prices are getting slammed again on Tuesday, as crude and oil ETFs plummeted to their lowest level in over two months Tuesday, feeling pressure from a hindered recovery in demand and scheduled production developments by OPEC that threaten to augment an already existing surplus of crude.
West Texas Intermediate crude oil futures, the benchmark grade of U.S. crude oil, plummeted 8% to $36.58 a barrel to reach their lowest price since mid-June. Brent-crude futures sank 5.4% as well, to reach $39.73 a barrel, marking the first time the international bellwether dropped below $40 in more than two months. WTI was somewhat affected by Monday’s tumble in Brent prices when U.S. markets were closed for the long weekend Labor Day.
Crude oil ETFs are under pressure from the falling futures markets Tuesday. The United States Oil Fund (USO) plummeted 6.24% while the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is down 4.23%.
“Right now the market is coming back to reality,” said Eugen Weinberg, head of commodity research at Commerzbank. “The problem is that gasoline demand in the U.S. didn’t continue to increase.”
Saudi Arabia’s national oil company, Saudi Aramco, slashed most of its prices this weekend for crude exports to the U.S., Asia and Northwest Europe for October, which analysts believe suggests that the kingdom is taking steps to bolster flagging demand for its oil.
“You’ve had a fundamental driver [of oil prices], which is the uncertainty around the demand outlook still tied to Covid and the reopening of economies globally,” said Harry Tchilinguirian, head of commodity research at BNP Paribas. “That uncertainty has been reinforced by the fact Saudi Arabia is reducing its selling prices, in particular to its main Asian market.”
Refineries are also struggling as well, say experts.
“Covid-19 has just absolutely killed the more inefficient refineries and now they have negative refining margins, so they can’t work at all,” said Bjarne Schieldrop, chief commodities analyst at Swedish financial group SEB. “You have refineries going out of business and a huge surplus of capacity.”
For more market trends, visit ETF Trends.