Oil prices lower on U.S.-China trade tension

By Bozorgmehr Sharafedin

Oil prices fell on Monday on worries that a global oil glut may persist even as coronavirus pandemic lockdowns start to ease and amid a fresh spat between the United States and China over the origin of the virus.

Brent crude was down 7 cents, or 0.3%, at $26.37 at 1339 GMT, while U.S. West Texas Intermediate (WTI) crude fell 39 cents, or 2%, to $19.39.

While global oil demand is expected to recover modestly from April lows as countries ease some lockdown measures, the glut created over months in storage facilities will loom over the markets.

“As oil inventories are likely still increasing over the coming weeks, oil prices remain vulnerable to renewed setbacks,” said UBS analyst Giovanni Staunovo.

However, Goldman Sachs was more optimistic than before about the rise of oil prices next year due to lower crude production and a partial recovery in oil demand.

The Wall Street bank raised its 2021 forecast for global benchmark Brent to $55.63 per barrel from $52.50 earlier. The bank hiked its estimate for WTI to $51.38 a barrel from $48.50 previously.

Signs that the output cuts may help reduce the supply overhang have emerged with the narrowing of Brent‘s contango – the market structure in which later-dated prices are higher than prompt supplies.

The six-month spread of Brent futures <LCOc1-LCOc7> hit its narrowest in almost a month at a discount of around $6.50, up from a record wide discount of almost $14 in late-March, reflecting decreasing oversupply expectations and making storage for later sale less profitable.

The re-emergence of trade tensions between the United State and China also weighed on prices.

Adding to U.S. President Donald Trump‘s threat last week to impose tariffs on China, Secretary of State Mike Pompeo said on Sunday there was “a significant amount of evidence” that the new coronavirus emerged from a Chinese laboratory.

“Demand projections have sobered up last week‘s enthusiasm and this, together with the prospect of new U.S.-China trade tensions, have weighted heavily on prices today,” said Rystad‘s senior oil markets analyst Paola Rodriguez-Masiu.

Oil prices recovered some of their losses after U.S. Treasury Secretary Steven Mnuchin said he expected China to make good on its trade agreement with the United States. He also said he expected oil markets to rebound, and that the Trump administration was looking for more storage capacity.

Concerns about weak manufacturing data in Asia and Europe, assessed by Purchasing Managers‘ Index (PMI) of manufacturing companies, also put pressure on oil prices.

In Asia, a series of PMIs from IHS Markit fell deeper into contraction from March, with some diving to all-time lows and others hitting levels last seen during the 2008-2009 global financial crisis.

PMIs in France, the euro zone‘s second-biggest economy, dropped in April to the lowest level on record. IHS Markit‘s Final PMI for German manufacturing, which accounts for about a fifth of Europe‘s largest economy, shrank at the fastest rate on record.

The U.S. dollar surged against most major currencies on Monday amid fears that last year‘s U.S.-China dispute will be re-ignited.

Oil is usually priced in dollars so a stronger greenback makes crude more expensive for buyers with other currencies.

(Reporting by Bozorgmehr Sharafedin, additional reporting by Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Emelia Sithole-Matarise, David Evans, Kirsten Donovan)

Related posts

Fin24.com | Locked out of aid, Zimbabwe begs IMF and World Bank for help

Zimbabwe, locked out of coronavirus-related aid programs because of debt arrears, has thrown itself at the mercy of organizations including the International…

Read More

Fin24.com | ANALYSIS | Associated Media Publishing‘s closure rounds off nightmare month for media firms

Association Media Publishing‘s closure, announced on Thursday afternoon by the magazine publisher, was one more indication that the economic impact of the…

Read More

Military Communications Market Size to Reach USD 62.96 Billion by 2026; High Demand for SATCOM Technology to Boost Growth, Says Fortune Business Insights™

Pune, May 04, 2020 (GLOBE NEWSWIRE) — The global size is set to gain traction from the increasing adoption of satellite…

Read More

Join The Discussion

Search

Compare listings

Compare