International Oil Prices Fell Below the Psychological Barrier

International oil prices fell significantly in the week (31 August solstice September 4), with oil prices in New York Posting their biggest weekly drop since June and falling below the psychological $40 mark. Market participants noted that international oil prices had come under downward pressure earlier, mainly due to a falling U.S. stock market and a stronger dollar, as well as the end of the summer driving season, adding to concerns that oil demand is about to weaken.

In the week, light crude for October delivery fell $1.60, or about 7.4%, to $39.77 a barrel on the New York Mercantile Exchange. London Brent crude for November delivery fell $1.41 to settle at $42.66 a barrel, down 5.3% for the week.

Market participants point to $40 as a big psychological barrier, breaking it and the fact that the off-season is about to begin, and creating conditions that make it "impossible to be bullish on oil." "The hope now is that the government expands the stimulus and economic activity has to pick up before demand picks up," said David Kirdoff, partner at Again Capital.

Novak, Energy minister, said oil demand had returned to 90 per cent of pre-outbreak levels, but travel restrictions and home-based arrangements were slowing the recovery. Mr Novak, who has seen the outlook for high oil prices in the past several years, thinks an average of $65 a barrel is possible by 2021, but he is sticking with his $50 - $55 forecast.