By Barani Krishnan
Investing.com - It never rains, but it pours.
The misfortune that began for oil longs two weeks ago hasn’t seem to have run its full course yet, as the resurgent dollar again provided the fuel for a selloff that took both the crude benchmarks below the key $40 support.
Adding to the bearish streak were worries that U.S. refinery runs could only be lower from here with the end of the peak summer driving season. More hurt came from the continuous tumble on Wall Street that took the Dow and S&P 500 down more than 2% each and Nasdaq by over 4%.
“We are dropping because we stopped rallying with the macro side of the market,” said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, North Carolina. “The dollar is stronger and the S&P being weaker is only helping the oil markets fall.”
New York-traded West Texas Intermediate, the key indicator for U.S. crude, settled down $3.01, or 7.6%, at $36.76 per barrel. It earlier marked a session low of $36.13. WTI fell 7.5% last week for its sharpest weekly drop since June.
London-traded Brent crude, the global benchmark for oil, settled down $2.23, or 5.3%, at $39.78 per barrel after a session low at $39.31. Brent lost 5.6% last week.
The Dollar Index, which pits the greenback against six other major currencies and works as a contrarian trade to commodities, rose 0.8% to hit a near one-week high at 93.49.
Just two weeks ago, oil prices hit their highest since March in a slow but persistently rally that propelled WTI to $43.78 per barrel and Brent to $46.53.
But with Monday’s Labor Day holiday symbolically bringing to an end the peak U.S. summer driving season, a familiar old theme began to make its rounds on the market: there may be more oil supply than demand hereon.
Also weighing on oil was OPEC kingpin Saudi Arabia’s decision last week to cut the selling price of its crude, ostensibly to preserve or widen its market share. The Saudi move came just weeks after OPEC’s global producer alliance called OPEC+ said it would scale back on production cuts. The rally of the Dollar Index and the stocks rout on Wall Street combined in a broad aversion of risk for investors.