Oil falls back to $40 with aviation slump adding to demand woes

Oil headed lower after capping its first monthly loss since April as a drop in commercial flights added to a worsening demand outlook.

Futures in New York fell to near $40 a barrel after losing 5.6% in September. A 7-day moving average of worldwide commercial flights declined to the lowest since mid-August, according to Flightradar24, a website that tracks flights in real time. The data comes after several top trading houses said a meaningful recovery in oil demand may take as long as 18 months to two years.

American benchmark crude prices rallied 2.4% on Wednesday, the most in two weeks, following an Energy Information Administration report that showed domestic crude inventories declined by almost 2 million barrels last week to the lowest level since April. Distillates stockpiles also posted a surprise drop.