LONDON (Reuters) – 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.
FILE PHOTO: The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. REUTERS/Angus Mordant/File Photo
Brent crude LCOc1 was down 7 cents, or 0.3%, at $26.37 at 1339 GMT, while U.S. West Texas Intermediate (WTI) crude CLc1 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