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Oil fell below $ 40 a barrel for the first time in a month, with stocks selling off and a stronger dollar exacerbating demand concerns as a lackluster summer season draws to a close.
New York futures fell 3.9% on September 4, leaving prices on track for the worst week since June. Stocks in the United States, Europe and Asia were weaker, with the S&P 500 Index falling 3.1%. The dollar also strengthened, diminishing the attractiveness of commodities denominated in the currency.
“People are maybe starting to think that maybe the market has gone a bit too far, got a step ahead of the economy and is selling more widely,” said Michael Lynch, president of Strategic Energy & Economic Research. “The stock selloff reflects a little more pessimism about the economy.”
Crude gets off to a bad start in September as outbreaks of COVID-19 in various parts of the world threaten a lasting rebound in oil consumption as the Organization of the Petroleum Exporting Countries and its allies return oil to the market. Russia’s Energy Minister said demand had returned to 90% of pre-COVID levels, but limited travel and working from home was slowing the recovery.
Meanwhile, the upcoming Labor Day holiday weekend will mark the end of the unusually sad summer driving months this year, with the usual drop in demand being all the more worrisome as the pandemic leaves businesses private. of the typical increase in earnings for the season.
“It was the summer driving season that wasn’t,” said John Kilduff, partner at Again Capital. “In the good old days, this would have been the last hoorah of the summer driving season” but “the demand situation continues to haunt this market.”
The diesel market is also weighing on the overall demand outlook. The Brent fuel premium, a key metric used to measure market strength, has fallen to its lowest in at least nine years due to stuttering consumption and an oversupply. Diesel, used to power heavy industry like agriculture and mining, as well as cars and trucks, is an important marker of economic health.
Physical markets show a mixed picture. Mars Blend, a high sulfur crude, is trading at its highest premium over futures on WTI in almost two weeks. Meanwhile, Bakken crude for delivery to Clearbrook, Minnesota fell this week to its biggest discount on Nymex oil futures since early August, before rallying slightly in recent sessions.
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