Oil prices retreated after last week’s rebound as Brent dropped to $42.66 per barrel and WTI weakened to $39.77 per barrel, dipping below the $40 barrier for the first time since June.
A weak outlook for global oil demand has revived concerns about the slow pace of recovery from the COVID-19 pandemic, with especially weak gasoline demand in the US at the end of the summer driving season.
Prices should have been supported by positive industrial data from the US and China. Oil inventories also declined for the sixth week in a row, which would usually have been another positive for the price.
Instead, a number of factors are now testing prices, including the approaching decline in China’s crude imports in September and October which are set to fall for the first time in five months as oil buyers struggle to find room to store record volumes of crude that were snapped up while prices
As China’s diesel and jet kerosene exports slumped in July and August, Chinese refiners have reduced their runs, while floating storage remains around 80 million barrels.
The sudden weakening of China crude oil imports at the end of the summer season, will adversely affect purchasing for October-loading barrels and will leave some spot barrels still available and unsold in the market.
More importantly, refinery maintenance season has been deliberately timed to occur during this period of historically low refining margins. Refiners may extend the maintenance season as a result which would put further pressure on the oil price.
The impact of Hurricane Laura on the US Gulf coast oil industry was muted because many refineries were shutting down anyway.