Crude oil futures stay mixed amid Aramco price cuts, capped supplies

0255 GMT: Crude oil futures were seen mixed in midmorning trade in Asia Sept. 7 as weaker economic data put demand concerns back in focus and on spillover effects of Saudi Aramco's price cuts for Asian buyers.

At 10:55 am Singapore time (0255 GMT), ICE November Brent futures were 27 cents/b (0.37%) higher at $72.49/b while the NYMEX October WTI contract was down 19 cents/b (0.27%) at $69.10/b.

The Labor Day holiday Sept. 6 meant most US markets were closed.

"Oil prices have largely been trading in consolidation as investors digest a series of push and pull factors. On one end, the lackluster US jobs report last week and the price cuts from Saudi Arabia seems to bring some questions for oil demand outlook, while on the other end, supplies are capped by the ongoing impact from Hurricane Ida, which underpins oil prices near-term," IG Market Strategist Yeap Jun Rong told S&P Global Platts Sept. 7.

Several analysts have said oil prices would be impacted by Saudi Arabia cutting prices for Asian buyers. The cuts suggest an uncertain demand outlook as COVID-19 cases are still on the rise in many countries, analysts from Phillip Futures said in a note.

Participants were reacting to physical crude market trends, as Aramco in its much-awaited monthly official selling price release Sept. 5 slashed prices for Asia.

For Asia-bound crude, Aramco cut October differentials versus an Oman/Dubai basis for Super Light and Light grades by $1.30/b, Extra Light by $1.20/b, and Medium and Heavy grades by $1/b from September levels. The cuts were much deeper than the month-on-month drop of 13 cents/b in the Dubai futures cash/paper spread in August, which is said to be a key element in OSP calculations.

Elsewhere in China, the Caixin/Markit services Purchasing Managers' Index fell to 46.7 in August from 54.9 in July, its sharpest contraction in 16 months, while Eurozone retail sales in July also dipped 2.3% month on month.

Despite the slow demand growth in China, analysts said expectations of increased domestic air travel were picking up and a growing number of COVID-19 vaccinations could support the oil market.

Meanwhile, the damage on oil production facilities in the US Gulf of Mexico following Hurricane Ida continued to keep output largely halted, limiting price declines.

"Energy companies have been coping with damaged platforms and onshore power outages and logistical issues, slowing efforts to restart production," UOB research analysts said Sept 7.

On Sept. 5, the US Bureau of Safety and Environmental Enforcement said 88.3%, or about 1.61 million b/d, of US Gulf crude output remained offline.

Looking ahead, analysts from Phillip Futures said the carryover effects of supply destruction caused by Hurricane Ida may keep prices elevated over the week, adding that a weaker dollar could also be another supporting driver for crude oil.