Oil prices sink below $40 on stock losses and dollar strengthening

Oil tumbled below $40 a barrel for the first time in a month with equity losses accelerating and the dollar strengthening.

Futures in New York declined as much as 3.5 per cent on Friday with prices on track for the worst week since June. Stocks in the US, Europe and Asia were weaker, with the S&P 500 Index falling more than 2 per cent. The dollar also strengthened, decreasing the appeal for commodities denominated in the currency. 

“People may be starting to think that the market has maybe gone a little too far, gotten ahead of the economy, and they’re selling off more broadly,” said Michael Lynch, president of Strategic Energy & Economic Research. “The sell-off in equities reflects a bit more pessimism about the economy.”

Crude is off to weak start in September as Covid-19 flare ups in various parts of the world threaten a sustained rebound in oil consumption at a time when the Organization of Petroleum Exporting Countries and its allies are returning oil to the market.  

The diesel market is also weighing on the overall demand outlook. The fuel’s premium to Brent, a key metric used to gauge the market’s strength, plunged to the lowest in at least nine years due to stuttering consumption and a glut of supply. 

Diesel, used to power heavy industry such as agriculture and mining, as well as cars and trucks, is an important marker of economic health.