Oil prices fell on Monday as uptick in coronavirus infections and escalation of tensions between the United States and China drove investors to commit their capital to safe-haven assets.
The dip in oil prices reverberated across broader financial markets in Asia amid worries about aggravating tensions between the world’s two largest economies after the closures of consulates in Houston and Chengdu. Global COVID-19 cases topped 16 million.
Yet, Brent is on its way to the fourth consecutive monthly gain in July and WTI is bound to rise for a third month as record output cuts from the Organisation for the Petroleum Exporting Countries and its Russia-led allies lifted prices. Production has similarly toppled in the U.S.
Oil demand has recovered to some extent from the deep trough of the second quarter, bolstering prices even though the path recovery has been uneven as re-imposition of lockdowns in the U.S. and other parts of the world is limiting consumption.
“Oil appears to be caught between opposing forces, crushing price volatility and ranges,” said Jeffrey Halley, Senior Market Analyst for Asia Pacific at OANDA.
Investors are on the tenterhooks for any impact from storm Hanna, which battered the Texas coast during the weekend, threatening a deluge in Texas and Mexico.
Oil and gas producers and refiners said on Friday they did not anticipate the storm to hinder operations.
Oil prices rally from lows hit earlier in 2020 has equally stimulated encouraged world’s top producers to ramp up output and exports again.
The U.S. oil rig count lifted last week for the first week since March after producers added one rig according to Baker Hughes, a sign that U.S. oil output plunge may have bottomed out.
“Whilst we believe rig activity has bottomed, we don’t expect to see a quick recovery anytime soon at current price levels,” ING analysts said in a note.
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