Oil slides as summer’s end heralds drop in demand

Source: By Mike Lee, E&E News reporter • Posted: Wednesday, September 9, 2020

A summer’s worth of lackluster news caught up with the oil market, sending the price of U.S. crude tumbling.

Oil prices had clawed their way back on hopes that the coronavirus pandemic was beginning to wane and boost the broader economy. But the end of the summer driving season is expected to push gasoline demand down again, and the U.S. is bracing for a new round of infections as people ignored social distancing during the Labor Day holiday weekend, according to the data firm Rystad Energy.

Internationally, cases are on the rise in India, and the demand and price outlook could also be dampened after President Trump said he plans to continue the push to “decouple” the U.S. economy from China’s if he’s reelected.

“Covid-19 has not really stopped its global expansion,” Paola Rodriguez-Masiu, Rystad’s senior oil market analyst, said in a research note, “and economies — with them oil demand — continue to be affected.”

West Texas Intermediate, the benchmark U.S. crude, fell below $40 a barrel Friday and continued to decline this week. By yesterday’s close, the price of a barrel had dropped about 10% since Thursday to about $37 a barrel.

That’s significant because much of the U.S. oil industry, particularly shale oil producers, has a hard time drilling new wells if prices stay below $45, according to GlobalData PLC.

The broader economy, including clean technology stocks like Tesla Inc., also took a hit yesterday, with the S&P 500 falling by about 3%.

Meanwhile, the Trump administration announced yesterday it would extend prohibitions on oil and gas development in the eastern Gulf of Mexico as well as off the Atlantic coasts of Florida, Georgia and South Carolina through mid-2032 (see related story).

Oil prices were above $60 a barrel at the beginning of the year but briefly turned negative in April, as the pandemic spread and the world’s economies jerked to a stop (Energywire, May 26).

They’ve been slowly climbing back since June, as optimism grew that Congress would continue to bolster the economy and that the virus was being contained.

The optimism proved illusory in some cases. Congress failed to pass a new round of stimulus in July and August. And COVID-19 has now killed more than 894,000 people worldwide, including 189,000 in the U.S., according to Johns Hopkins University.

“Cross-border travel restrictions by land and air remain in place around the world, and with millions of workers unlikely to get their jobs back anytime soon, any recovery in oil demand may prove slower than expected,” online trading firm Saxo Bank said in its third-quarter outlook note.

There have been several bad signs for the oil industry, beginning Friday. Russia’s oil minister predicted in an interview with CNBC that prices would stay low into 2021. The number of drilling rigs operating in the U.S. is still near a record low, according to Baker Hughes Co., and Saudi Arabia lowered its oil prices.

“We see weak fundamentals coming into play,” analysts at the investment bank Tudor Pickering Holt & Co. wrote in a note.