https://arab.news/megc9
- While global oil demand is expected to recover modestly from April lows as countries ease some lockdown measures
LONDON: 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 US and China over the origin of the virus. Brent crude was down 7 cents, or 0.3 percent, at $26.37, while US West Texas Intermediate (WTI) crude fell 39 cents, or 2 percent, 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.
鈥淎s oil inventories are likely still increasing over the coming weeks, oil prices remain vulnerable to renewed setbacks,鈥� 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鈥檚 contango 鈥� the market structure in which later-dated prices are higher than prompt supplies. The six-month spread of Brent futures 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 US and China also weighed on prices.
Adding to US President Donald Trump鈥檚 threat last week to impose tariffs on China, Secretary of State Mike Pompeo said on Sunday there was 鈥渁 significant amount of evidence鈥� that the new coronavirus emerged from a Chinese laboratory.
鈥淒emand projections have sobered up last week鈥檚 enthusiasm and this, together with the prospect of new US-China trade tensions, have weighted heavily on prices today,鈥� said Rystad鈥檚 senior oil markets analyst Paola Rodriguez-Masiu.
Oil prices recovered some of their losses after US Treasury Secretary Steven Mnuchin said he expected China to make good on its trade agreement with the US. 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鈥� 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鈥檚 second-biggest economy, dropped in April to the lowest level on record. IHS Markit鈥檚 Final PMI for German manufacturing, which accounts for about a fifth of Europe鈥檚 largest economy, shrank at the fastest rate on record.
The US dollar surged against most major currencies on Monday amid fears that last year鈥檚 US-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.