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Oil extended losses after Saudi Arabia slashed crude prices for Asian buyers by more-than-expected just days after OPEC+ agreed to continue raising production.

Futures in New York dipped below $69 a barrel after falling 1% on Friday. The kingdom cut the price of its flagship crude for October by $1.30, more than double the forecast reduction in a Bloomberg survey. Traders were surprised by the move, attributing it to factors including arbitrage inflows from regions such as the U.S. and competition to retain market share.

After rallying in the first half of 2021, oil’s surge has stalled as the market weighed a mixture of bearish and bullish signals. New Covid-19 variants and the readiness of governments to release strategic reserves weighed on investor sentiment, even as a decline in global crude inventories and record-high U.S. fuel consumption added to optimism. 

Asian buyers will need to submit their requests for October volumes by Sept. 6. Saudi official prices for cargo sales to the U.S., Northwest Europe and the Mediterranean were stable or little changed, pointing to the producer’s intent on prioritizing oil flows to Asia. 

Last month, some Asian customers requested less Saudi volumes as the delta variant prompted the return of movement restrictions. Still, OPEC and its allies expect global oil markets will continue to tighten this year even as they revive output, before flipping into surplus again in 2022. 

Separately, traders are closely watching for the return of oil production and refineries affected by Hurricane Ida. The U.S. granted a second refiner in Louisiana access to the country’s emergency crude stockpiles as most oil-producing platforms in the Gulf of Mexico remain offline. 

 

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