It’s no surprise that oil prices took a hit today as the market got a clear price direction from one of the industry’s pricing leaders, Saudi Aramco. When the Saudi giant cuts its selling prices to Asia for October, signaling it sees the supply-demand relationship slightly shifting, traders can’t but follow down that path today. Saudi price cuts is the second consecutive slap to oil prices after Friday’s profit taking and non-farm payrolls surprise.

The move could signal Saudi Arabia is looking to defend market share in the key Asian market, while also revealing some concern about the demand outlook. In our view, the Saudi cut in prices is not large enough to warrant huge concerns about neither market share aspirations nor demand. It is, though, a tilt in the negative direction for the market, after a long period of bullish news from around the oil world.

In the US, refineries are reportedly managing to restart operations at 4 of the 9 sites in Louisiana, with only 1 million bpd of capacity now still completely shut-in. On the crude supply side, in the US Gulf of Mexico, operators have still around 93% of oil production shut-in as of last night. Nevertheless, it would be a huge surprise to the market if it would take more time for offshore production to recover than for refineries to restart, so the market is paying attention to the recovery efforts.

Today’s price action may be sanguine as the US market is shut for Labor Day, but US inventory news later this week could cause some larger price swings. The market will be looking for clues from the demand side as the Covid-19 variants are still spreading and are causing concerns over the trajectory of the oil demand recovery. In a way, when the Saudis are cutting selling prices to their biggest buyer pool – this is a clue of some skepticism towards oil demand being on a solid path for a come back towards the 100 million bpd. But more clues may be laying ahead, especially if the Covid variants come back with a vengeance.