Crude prices mixed as lockdowns ease, U.S.-China tensions threaten demand

NEW YORK (Reuters) – Oil prices were mixed on Monday as countries started to ease coronavirus lockdowns, though a fresh spat between the United States and China over the origin of the virus weighed on prices.

Worldwide fuel demand fell by an estimated 30% in April, and weak consumption is expected to overhang the crude market for months, even as major world oil-producing nations and companies quickly reduce output. However, analysts have said that swift action by those parties could help reduce the supply glut more quickly.

“The bigger picture, while not great, is looking more constructive as countries around the world are reopening and that’s going to increase oil demand at the same time OPEC-plus is cutting production,” said Andy Lipow of Lipow Oil Associates in Houston.

Brent crude LCOc1 fell 24 cents to $26.37 a barrel by 11:15 a.m. EDT (1515 GMT), while U.S. West Texas Intermediate (WTI) crude CLc1 gained 2 cents to $19.80 a barrel.

Italy was among a number of countries easing lockdown restrictions on Monday to resurrect their economies, but officials cautioned against moving too swiftly as globally, new coronavirus cases passed 3.5 million and deaths neared a quarter of a million. [nL8N2CM2MC]

Goldman Sachs said it has become more optimistic 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.

Brent crude’s contango – the market structure in an over-supplied market where prompt supplies are cheaper than those for later delivery – has slimmed. That shows traders believe output cuts will reduce supply in coming months.

The six-month spread of Brent futures LCOc1-LCOc7 hit its narrowest in almost a month at a discount of $6.27 per barrel, down from a record discount of almost $14 in late-March, reflecting decreasing oversupply expectations.

The re-emergence of trade tensions between the United State and China limited any upswing in prices.

Adding to U.S. 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 U.S.-China trade tensions, have weighted heavily on prices today,” said Rystad’s senior oil markets analyst Paola Rodriguez-Masiu.

Oil prices recovered some of their losses after U.S. Treasury Secretary Steven Mnuchin said he expected China to make good on its trade agreement with the United States. He also said he expected oil markets to rebound, and that the Trump administration was looking for more storage capacity.