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- Oil futures fell on Monday, in their longest slide since April, as Saudi Arabia made deep price cuts for Asia-bound crude to help stir demand.
- This could help secure a South African fuel price cut in October, with diesel already on track for a 65c/litre decline.
- Money managers have turned increasingly bearish on energy contracts in the week to September 1, according to data from Saxo Group.
- Among energy contracts, Brent crude and New York Harbor diesel oil led net selling positions by money managers until the start of September.
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Oil prices tumbled to their lowest since late July on Monday, as Saudi Arabia cut prices for sales of its crude to Asia to counter slower demand among some of the world’s biggest consumers, such as China.
The world’s biggest exporter cut prices for a second consecutive month to help increase demand for its crude oil.
US benchmark West Texas Intermediate dropped 1.4% to $39 in morning European trading and global benchmark Brent crude fell 1.4% to $42— down for a fourth straight day in its longest slide since April’s historic price crash.
State oil producer Saudi Aramco cut its October official selling price (OSP) for shipments to Asia by $1.40 per barrel to a discount of 50 cents a barrel against the Middle East regional crude benchmark.
“Oil prices did not like the latest vaccine news as Moderna says it’s slowing the newest trial to ensure diversity,” said Stephen Innes, chief global market strategist, at Axitrader.
Weekly data from the US Commodity Futures Trading Commission showed fund managers have cut their bullish bets on the energy complex in the latest week.
Brent crude and US diesel oil saw the most selling by money managers in the week to September 1, according to Saxo Bank.
“Crude oil’s failure during the past month to break higher despite several price friendly developments had increasingly left the sector exposed to profit taking,” wrote Ole Hansen, head of commodity strategy at Saxo Bank.
The US Labour Day holiday signalled the beginning of a low demand period, a risk of rising stock piles, and a widening contango, he said, implying investors are worried about the supply-demand balance.
“Abundant supplies, fears of loosening OPEC+ compliance, the end of the US driving season and stale long positioning have all combined to erode confidence in oil,” said Jeffrey Halley, a senior market analyst at OANDA.
Halley said he now expected “massive falls”, but with signs of global recovery likely to increase, both Brent and WTI crude should find some stability at lower levels.
A structural rally in oil prices may only occur if the dynamics that led to the price drops adjust materially, he said.
While there are still more than three weeks to go, there are hopeful indications that South Africans may get a fuel price cut at the start of October. Combined with the oil price slump, the rand has also been relatively strong so far in September, which could contribute to a decline.
According to the latest Central Energy Fund data, diesel is on track for a 65c cut, while at the moment petrol could decline by between 10c and 20c a litre.