U.S. oil prices crashed after Labor Day as demand for crude oil fell to lows last seen at the pandemic’s onset.
Brent crude, the world’s petroleum benchmark, fell below $40 a barrel. The American West Texas Intermediate(WTI) benchmark fell seven and a half percent, down to $36.76 a barrel in the U.S., the lowest since late June as demand for summer travel picked up.
Analysts say that the current low demand for oil is driven in part by people’s outlook on the future of oil.
“Today’s oil-price move is a clear sign that the market now seriously worries about the future of oil demand,” said Paola Rodriguez-Masiu, an oil market analyst with Rystad Energy.
The recent success of Tesla’s stock during the pandemic could be a sign of more consumers preferring electric vehicles, or investors speculating that consumers will shift that way sooner rather than later, despite a battered coronavirus economy.
Nikola, another electric vehicle company, gained General Motors as a significant stakeholder this week, with existing car manufacturers betting on electric.
Saudi Arabia, the leading producer in the OPEC oil cartel, announced that it was cutting October oil prices, first reported by Bloomberg.
“Prices were perhaps overdue a bit of a correction,” said Paul Horsnell, head of commodities research at Standard Chartered Bank. “The demand recovery coming in a bit flatter than early expectations has been one of the key themes in fundamental data over the past couple of months.”
Aside from some green energy stock success, the tech market dove this week as investors began to sell off en masse. Some analysts, like Jeff Wyll, an energy analyst at Neuberger Berman, said that nothing has changed with oil supply and demand.
“Oil is getting caught up in the risk-off trade,” explained Wyll.
Still, oil companies have struggled during the pandemic, with BP reporting a $16.2 billion loss in Q2 and announcing goals to cut oil and gas production over the next decade, while investing more into renewables.
“Demand is down. Supply is up,” said Robert Yawger, director of energy futures at Mizuho Securities. “The economic laws of survival are being violated on both ends of the spectrum.”
As states began to open, Americans took to traveling by car, especially over Labor Day weekend, where gas prices reached an average $2.22 per gallon, up from the $1.77 low in April. But air travel remains abysmal, with the TSA reporting 70 percent fewer travelers on August 9 compared to the same day last year.
“It doesn’t seem like a massive stock draw seems to be happening yet,” Keisuke Sadamori, Director of Energy Markets and Security at the IEA, told Reuters. “We are not seeing a robust pickup in refining activity, and jet fuel is the big problem.”
Consumers can expect lower gas prices through the fall.