The much expected global recovery hit a major bump as rising COVID cases and weakening demand pushed the oil prices lower as oil contracts slumped.

The move was initiated by industry giant Saudi Arabia which is cutting prices for October shipments in an effort to support market demand for both its Asian and American customers.

West Texas Intermediate (WTI) crude contracts for October sank as much as 9.2 percent, to $36.13 a barrel, whereas, Brent crude tanked as much as 6.7pc, to $39.79, at intraday lows.

"It is getting very ugly in the energy space as the revised base case scenarios for a return to a pre-pandemic crude demand levels keeps getting pushed back," Edward Moya, senior market analyst at OANDA, said, quoted Business Insider. "WTI crude won't stabilize until the stock market panic eases, which could mean prices will hang around the mid-$30s for the next couple of weeks."

The drop in oil prices comes on a backdrop of continued weakness in consumption that was still double-digits below prior-year levels started crude prices tumbling lower.

Furthermore, top U.S. independent oil producers are seeing their stocks take a pummeling, with shares of Apache Corp, Murphy Oil, Diamondback Energy all down by double digits over the past week.

In Asia, the drop comes as China steered away from massive stockpiling to working through that excess inventory. Whereas, Saudi Arabia is taking steps to grab as much market by cutting its rates.

In the U.S. the biggest driver is the end of the peak summer season, which fell well short of expectations as oil consumption rose modestly from month to month since June but remained well below prior-year levels.

The development is most likely to hit the U.S. oil industry the hardest as many independent oil producers were dealing with prices that didn't cover their operating expenses. As a result, we have already seen dozens of private and public oil companies go bankrupt.