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Oil prices collapse after Saudi Arabia sends ominous signal

2020-09-09T09:51:14.986Z


US oil prices tumbled 7% Tuesday to $ 36.76 a barrel. It was the worst day for crude and the lowest closing price in almost three months.


Apple "expels" ExxonMobil and only one oil company remains in the Dow 1:09

New York (CNN Business) -

Once again, demand fears are spreading through the oil zone.

US oil prices tumbled 7% Tuesday to $ 36.76 a barrel.

It was the worst day for crude and the lowest closing price in almost three months.

At one point, oil was down as much as 9%.

Brent crude, the global benchmark, fell below $ 40 a barrel for the first time since late June.

The fierce selling in the energy market is due in large part to growing concern about the amount of crude needed by the fragile global economy.

With Labor Day in the rearview mirror, America's summer overland travel season is over.

The demand for jet fuel remains extremely weak because many people do not want to fly during the pandemic.

And no one knows for sure how long it will take to recover.

“The demand has dropped.

The offer has increased, ”said Robert Yawger, director of energy futures at Mizuho Securities.

"The economic laws of survival are being violated at both ends of the spectrum."

The sell-off comes after Saudi Arabia, OPEC's de facto leader, cut its official selling price to Asia and the United States, Bloomberg News reported.

It is never a good sign that the world's leading oil exporter feels compelled to cut prices to attract buyers.

"That's a double wink warning sign," Yawger said.

"OPEC panicked today by sending a bad signal to the energy community."

'Avalanche of sell orders'

The latest oil market turmoil comes during major stock market turmoil.

The Nasdaq tumbled Tuesday for the third day in a row and is flirting with a 10% correction from all-time highs.

The major winners during the pandemic, such as Tesla, Apple and Zoom, have fallen much more.

"Oil is caught up in the risk reduction trade," said Jeff Wyll, an energy analyst at Neuberger Berman.

He added that "nothing changed" in the fundamental oil supply / demand landscape to "justify this kind of decline."

Just when investors are exiting tech stocks, they are undoing the speculative bets on crude oil.

They are all trying to get out at the same time.

There is a flood of sell orders, ”said Mizuho's Yawger.

Investors are also abandoning oil reserves.

Apache, Occidental Petroleum and Diamondback Energy fell more than 6% on Tuesday.

ExxonMobil, which was expelled from the Dow last month, fell another 3%.

Air travel shortage depresses demand

The pandemic, coupled with a price war between Russia and Saudi Arabia, caused oil prices to implode this spring.

US oil prices even briefly fell negative for the first time in history, bottoming out at -40 a barrel.

But unprecedented production cuts from OPEC and Russia helped trigger a V-shaped recovery in the energy market.

Just seven weeks after bottoming out, US crude returned to $ 40 a barrel.

That led OPEC and Russia to agree to slowly increase production from very low levels.

The good news for the oil bulls is that demand for gasoline has rebounded abruptly.

Road traffic has almost recovered and Bank of America expects global demand for oil from road use to be positive year-over-year in the coming months.

That has helped drive the national average price of gasoline in the United States to $ 2.22 a gallon, from a low of $ 1.77 in late April.

The bad news is that air travel is nowhere near pre-covid-19 levels and that keeps demand for jet fuel very depressed.

As CNN's Business Recovery Tracker shows, only 940,000 people were processed through TSA security lines on Monday, 59% less than a year ago.

Business travel is likely not to pick up until there is widespread access to a coronavirus vaccine, United Airlines President Oscar Muñoz recently told CNN Business.

That's why Bank of America warned in a report late last week that it will take three years for global oil demand to "normalize."

“The demand for oil worldwide is really slow.

All the fruits of the global oil recovery have already happened, ”said Michael Tran, managing director of global energy strategy at RBC Capital Markets.

When will crude bottom out?

Tran cautioned that the fundamentals of the oil market will likely "remain weak through the fall."

So how much lower can oil go?

Even at Tuesday's lows, U.S. oil prices are still trading around $ 75 above the negative prices reached on April 20.

But energy analysts don't expect that subzero trip to repeat itself, maybe ever again.

Yawger anticipates that crude will not drop much more than US $ 30 a barrel because at that point OPEC would be forced to come to the rescue again.

"I don't think we will go to the abyss again like in the spring," he said.

Source: cnnespanol

All news articles on 2020-09-09

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