Oil plunges 9% as major producers slash prices on demand weakness

Oil futures tumbled on Tuesday as major producers cut prices to shore up market demand.

West Texas Intermediate crude contracts for October delivery sank as much as 9.2%, to $36.13 a barrel, before stabilizing. Brent crude tanked as much as 6.7%, to $39.79, at intraday lows.

The world’s most traded commodity has fallen under new pressure in recent sessions amid signs that coronavirus fallout continues to weigh on the energy sector. Reopenings through the summer prompted a moderate rally and held contracts around $43 per barrel, but prices have since slipped on concerns the market may take longer than expected to bounce back.

Selling kicked off on Sunday after industry giant Saudi Aramco slashed prices for October crude amid lasting demand weakness, Bloomberg first reported. Abu Dhabi National Oil followed suit on Tuesday, cutting its own prices and reiterating the region’s market slump.

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The slide placed WTI and Brent to their lowest levels since June. Both contracts broke through the key support of $40 per barrel at their lowest points in the session.

“It is getting very ugly in the energy space as the revised base case scenarios for a return to a pre-pandemic crude demand levels keeps getting pushed back,” Edward Moya, senior market analyst at OANDA, said. “WTI crude won’t stabilize until the stock market panic eases, which could mean prices will hang around the mid-$30s for the next couple of weeks.”

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Separately, investors found cause for concern in President Donald Trump’s latest rhetoric against China. The president said on Monday he plans to end the US’s reliance on China and its manufacturing industry. Trump also threatened to punish companies moving jobs outside the US and keep firms with operations in China from winning government contracts.

Such actions could further cut into oil demand by decreasing trade activity between the economic superpowers.

WTI crude traded at $39.78 a barrel as of 2:30 p.m. ET Tuesday. Brent crude traded at $36.78.

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