Oil prices dip by 3%

Oil prices spiralled 3 per cent downward on Friday erasing previous months gain as major crude benchmarks fell to their lowest points since July.

The international benchmark, Brent crude, dropped $1.41 or 3.2 per cent to $42.66 per barrel, while the United States West Texas Intermediate (WTI) crude fell $1.60 or 3.87 per cent to sell at $39.77 per barrel.

The decline in the prices of the futures on Friday was attributed to concerns over prospects for demand, losses in the stock market and strength in the US dollar.

The dollar was traded higher for the week and on Friday it got a boost, in part, from better-than-expected monthly US employment data, which revealed a drop to 8.4 per cent in the August unemployment rate, from 10.2 per cent.

Oil demand also continues to be a key concern. Global oil demand could fall by 9-10 million barrels per day this year due to the coronavirus pandemic.

A record supply cut since May by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, has supported prices.

However, OPEC began in August to ease the scale of the cuts, raising output by almost 1 million barrels per day.

Crude is off to a weak start in September as coronavirus cases rise in various parts of the world and this is threatening a sustained rebound in oil consumption at a time when the oil cartel started easing historic output curbs.

Reportedly, demand has returned to 90 per cent of pre-pandemic levels, but limited travel and work from home arrangement have limited the recovery.

Despite six straight weeks of declines in crude stockpiles in the US, inventories are still at the highest seasonally in more than a decade, according to the Energy Information Administration (EIA).

Inventories decreased by 9.4 million barrels from the previous week. At 498.4 million barrels, US crude oil inventories are about 14 per cent above the five year average for this time of year as of August 28, 2020.

Contributing to the bad outlook, US stocks weakened and the S&P 500 Index, dropping more than 3 per cent before easing losses on Friday.