Oil continues to decline due to weak demand recovery

September 07, 2020 13:30

The prices of Brent oil and WTI are maintaining their downward trend on Monday and prices are falling by around 1% due to the weakness of the recovery in demand due to the effects of the Covid-19 pandemic. The price of crude oil is thus following the downward trend of last week, after a report warned that China would reduce its oil purchases this month and that Saudi Arabia has cut its prices for supplies to Asia.

Brent, the benchmark in Europe, was trading at $42.03 a barrel this morning, very close to its lowest level since July 30. West Texas Intermediate fell to $39.14 a barrel on the Labor Day holiday in the US. To get an idea of the fall, we must remember that on August 26, Brent was trading close to 46 dollars and WTI around 43 dollars a barrel, in the days prior to the arrival of Hurricane Laura, which forced production stoppages at US refineries in Texas and Louisiana.

Source: Admiral Markets MetaTrader 5. Brent Crude Oil daily chart (CrudeOilUk_X0). Date range: from November 11, 2019, to September 7, 2020. Prepared on September 7, 2020, at 11 a.m. Keep in mind that past returns do not guarantee future returns.

Source: Admiral Markets MetaTrader 5. WTI daily chart (WTI). Data range: from December 20, 2019, to September 7, 2020. Prepared on September 7, 2020, at 11 a.m. Keep in mind that past returns do not guarantee future returns.

"There are many uncertainties regarding the Chinese economy and its relationship with key countries, such as the United States and these days, even with Europe," Keisuke Sadamori, director of energy markets and security at the International Energy Agency, told Reuters.

As we see in the graphs above (Brent top, WTI bottom), since the beginning of 2020, the oil market has been affected by different events that have caused high volatility in this instrument until last April 20 when an unprecedented situation with a contango effect occurred. This volatility began with the escalation of tension at the beginning of the year between the United States and Iran and intensified with the global coronavirus pandemic.

In the last four years, oil has registered a certain price recovery since 2016, but for now, it has not been able to reach or come close to the record prices prior to 2014.

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