Oil snapped a three-day gain as exchange-traded funds avoided nearer-term contracts following last month’s plunge below zero, while a massive supply glut continued to worry investors.
Futures in New York fell 8 percent toward $18 a barrel after their first weekly gain in a month. The manager of a $500 million oil exchange-traded fund in Hong Kong said its broker refused to let it increase holdings of crude futures. S&P Global Inc., which is behind the most closely followed commodity index, said it will roll West Texas Intermediate futures for July into August, while the United States Oil Fund LP said it will halve holdings in the July contract.
Crude rallied last week on early signs of improving consumption and the start of output curbs from OPEC+ and other producers. That positive tone was undercut, however, by a Bloomberg survey showing OPEC output surged by the most in almost 30 years in April as countries kept pumping even after reaching a price-war truce in the middle of the month.
While there are signs the plunge in oil consumption might have bottomed out in some markets, traders believe it’s likely to take more than a year and perhaps longer for demand to return to pre-coronavirus levels. The massive glut built up over March and April will also keep prices depressed even as fuel use picks up. Meanwhile, rising tension between the US and China over the virus threatens to hamper the global economic recovery.
“The coronavirus re-opening watch will remain center stage, and the latest weekly US stockpiles and demand numbers will also be key in shaping market sentiment,” said Vandana Hari, founder of Vanda Insights. The US raising tensions with China over the virus is also weighing on the market, she said.
WTI for June delivery declined 7.8 percent to $18.22 a barrel on the New York Mercantile Exchange as of 7:08 a.m. in London. It rallied almost 17 percent over the five previous sessions, the first weekly gain in a month.
Brent for July settlement fell 2.3 percent to $25.82 a barrel on London’s ICE Futures Europe exchange after advancing 23 percent last week. The price of Dated Brent, a reference for two-thirds of the world’s physical crude, was $19.36 on Friday, according to traders monitoring prices from S&P Global Platts.
Algerian Energy Minister Mohamed Arkab, who holds OPEC’s rotating presidency, called on members of the cartel to implement more than 100 percent of their agreed cuts under the deal that took effect from May 1. There’s evidence production is also falling in countries that are not party to the OPEC+ deal. In the US, the world’s largest producer, the oil rig count fell for a seventh straight week.
President Donald Trump promised a “conclusive” report from the US government on the Chinese origins of the coronavirus outbreak, adding that he has little doubt that Beijing misled the world about the scale and risk of the disease before it became a global pandemic. That came after Secretary of State Michael Pompeo said “enormous evidence” shows the COVID-19 outbreak began in a laboratory in Wuhan without providing any proof for his claims.
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