Oil drops over 5% on China-U.S. tensions, demand doubts

Business

LONDON (Reuters) – Oil fell over 5% on Friday towards $34 a barrel as tensions rose between the United States and China, and doubts grew about the pace of demand recovery from the coronavirus crisis.

FILE PHOTO: A TORC Oil & Gas pump jack is seen near Granum, Alberta, Canada May 6, 2020. REUTERS/Todd Korol/File Photo

China is set to impose new national security legislation on Hong Kong, drawing a warning from U.S. President Donald Trump. Beijing also failed to set an economic growth target as the pandemic hammers the word’s second-largest economy.

Brent crude dropped $1.96, or 5.4%, to $34.10 a barrel at 0833 GMT, after falling to as low as $33.54. U.S. West Texas Intermediate (WTI) crude declined by $2.41, or 7.1%, to $31.51.

“Investors are once again having to contend with an intensifying war of words between the U.S. and China,” said Stephen Brennock of oil broker PVM.

“The coronavirus has nullified a decade of global oil demand growth and the recovery will be slow going forward.”

Oil has slumped in 2020, with Brent hitting a 21-year low below $16 in April and U.S. crude falling below zero. With fuel use rising and supply cuts kicking in, Brent has since more than doubled and was still on track for a fourth weekly gain.

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The Organization of the Petroleum Exporting Countries, Russia and other allies, known as OPEC+, agreed to tackle the supply glut with a deal to reduce supply by a record 9.7 million barrels per day from May 1.

Export figures suggest OPEC+ made strong start in complying with the deal. In a sign of the glut easing. U.S. crude inventories fell last week.

There are signs of gasoline demand rising and some airlines are planning for s return of European travel, meaning more jet fuel demand.

Traders will be keeping an eye on U.S. demand readings for the upcoming Memorial Day weekend, a time when consumption usually rises.

(GRAPHIC: Weekly changes in petroleum stocks in the U.S. – here)

Additional reporting by Aaron Sheldrick; Editing by Richard Pullin and David Evans

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