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Oil Loses Ground As Saudi Arabia Cuts Prices For Customers

By:
Vladimir Zernov
Published: Sep 7, 2020, 15:26 UTC

Oil trades near the $39 level amid concerns about the speed of oil demand recovery.

U.S. Stock Market

Oil Video 07.09.20.

Saudi Arabia Cuts Prices For Buyers In Asia And U.S.

Oil remains under significant pressure as Saudi Arabia cut its October official selling prices for customers in Asia and U.S.

Asia, home to China and India, was seen as a rare bright spot for oil demand during the current crisis. Saudi Arabia’s move highlights the vulnerability of demand recovery in this region.

While it’s too early to talk about another slowdown in demand, it looks like Asian customers were not ready to take too much oil at current prices so Saudi Arabia had to offer a discount in order to defend its market share in the key region.

In recent days, oil found itself under pressure due to fears about the pace of oil demand recovery so Saudi Arabia’s move intensified the recent negative trend.

In addition, the Labor Day marks the end of the driving season in the U.S., so future declines in inventory levels will be harder to achive.

The Number Of U.S. Rigs Drilling For Oil Increases By 1 To 181

The most recent Baker Hughes report has indicated that the number of U.S. drilling rigs increased by 2 to 256. The number of U.S. rigs drilling for oil also grew by 1 to 181.

In the previous week, the number of U.S. rigs drilling for oil decreased from 183 to 180. Thus, the number of oil rigs started to rebound after the recent pullback.

It remains to be seen whether the number of U.S. oil rigs will stay above 180 in the light of recent oil price action.

WTI oil remained mostly above the $40 level in July and August so U.S. oil producers had the time to adjust their plans with this new price level in mind.

Currently, oil is trying to settle below the $40 level. If oil’s visit to sub-$40 territory is not followed by a quick rebound, oil will have decent chances to gain more downside momentum and get below the $39 level.

While U.S. oil producers are notorious for their quick reaction to market changes, I do not expect immediate changes caused by the recent market sell-off. Previous sell-offs in July and August were followed by quick rebounds so the U.S. oil industry will likely choose to wait for additional clarity regarding oil’s near-term trend.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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