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U.S. oil prices headed lower early Monday, with persistent worries about a flare up in tensions between China and the U.S. over the former’s handling of the outbreak of the novel strain of coronavirus seen as one catalyst for a downbeat mood in an asset that has already been dogged by fears of oversupply.
The COVID-19 pandemic already has delivered a punishing blow to demand for crude, as economies contract amid attempts to control the spread of the deadly pandemic. Signs of rising Sino-American tensions are likely to produce fresh headwinds for the beleaguered asset, industry analysts say.
“The resumption of the trade war will be detrimental to oil prices over the long term,” wrote Stephen Innes, chief global market strategist at AxiCorp, in a daily research note.
On Sunday, U.S. Secretary of State Mike Pompeo, in an interview on ABC’s “This Week, ”said he has seen “enormous evidence” that the virus originated in a laboratory in Wuhan, China, and on a separate interview on Fox Business, President Donald Trump said that he believes China “made a horrible mistake and they didn’t want to admit it.”
Worries of possible retaliation from the U.S. for China’s handling of the outbreak could add to demand woes for the crude at the worst possible time.
Some evidence of stabilization had been showing up in crude prices, with futures booking a weekly gain on Friday, as May 1 marked the official start for production cuts under a historic agreement between major oil producers, led by the Organization of the Petroleum Exporting Countries and its allies, including Russia—a group collectively known as OPEC+. The group agreed to cut 9.7 million barrels a day in May and June to help steady falling prices in the market.
West Texas Intermediate crude for June delivery CL.1, -6.37% on the New York Mercantile Exchange, was $$1.41, or 7.3%, lower at $18.37 a barrel, at last check early Monday. It logged a 16.8% weekly rise on the New York Mercantile Exchange on Friday, according to Dow Jones Market Data.
Global benchmark July Brent crude BRNN20, -2.76% was 61 cents, or 2.3%, lower at $25.84 a barrel, after the front-month contract prices rose 6.6% for the week.
Innes said that attempts to rebalance oil and stem overproduction by global producers should be able to overcome nascent geopolitical conflicts between the U.S. and China. “Still, with demand devastation plumbing the depths, any signs of rebalancing either through economic reopening’s or additional forced or agreed upon supply cuts, should ultimately be viewed supportive for oil prices at current levels,” he wrote.
