LONDON: Oil prices fell on Monday on worries that a global oil glut may persist even as coronavirus pandemic lockdowns start to ease, amid a fresh spat between the United States and China over the origin of the virus.
Brent crude LCOc1 was down $0.57, or 2.2%, at $25.87 a barrel, at 1021 GMT, and US West Texas Intermediate (WTI) crude CLc1 fell $1.41, or 7.1%, to $18.37.
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 $6.5, 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 States and China also weighed on prices.
Adding to US 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 US-China trade tensions, has weighted heavily on prices on Monday,” said Rystad’s senior oil market analyst Paola Rodriguez-Masiu.
Concerns about weak manufacturing data in Asia and Europe, assessed by Purchasing Managers’ Index (PMI) of manufacturing companies, also put pressure on oil prices.
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