Oil prices slip on US-China tensions, rising virus cases hit demand recovery

Oil prices edged lower on Monday, as rising coronavirus cases and tensions between the United States and China clouded the outlook for oil demand recovery.

Brent crude dipped 53 cents, or 1.2 percent, to $42.81 a barrel by 1340 GMT, while US West Texas Intermediate (WTI) crude dropped to $40.88 a barrel, down 41 cents, or 1.05 percent.

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The fall came as investors sought safe havens, such as gold and bonds, given tensions between the world’s two biggest economies following the closures of consulates in Houston and Chengdu. Global cases of the new coronavirus, meanwhile, exceeded 16 million.

Brent is still on track for a fourth straight monthly gain in July and WTI is set to rise for a third month as supply cuts from the Organization of the Petroleum Exporting Countries and Russia provided support.

Output has fallen sharply in the United States although the US oil rig count rose last week for the first week since March.

“Oil appears to be caught between opposing forces, crushing price volatility and ranges,” said Jeffrey Halley, OANDA’s senior market analyst.

Oil demand has risen after plunging in the second quarter, but the recovery is uneven as lockdowns are reimposed because of resurging infection rates.

Expectations of US stimulus measures and a weak dollar, which makes dollar-denominated commodities cheaper for holders of other currencies, capped losses.

The US dollar index reached its lowest since September 2018, hurt by deteriorating US-China relations and domestic economic concerns.

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US Senate Republicans on Monday are expected to unveil a new $1 trillion coronavirus aid package.

“Massive monetary stimulus has bullish implications for oil,” analysts from Raymond James said in a note, adding that oil has historically moved upwards with inflation spikes and that the current US money supply increase is unprecedented.