LONDON: Oil fell 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.
China is set to impose new national security legislation on Hong Kong, prompting a warning from US President Donald Trump. Beijing also failed to set an economic growth target as the pandemic hammers the world’s second-largest economy.
Brent crude LCOc1 dropped $1.57, or 4.4%, to $34.49 a barrel at 1005 GMT, after falling as low as $33.54. US West Texas Intermediate (WTI) crude CLc1 declined by $1.88, or 5.5%, to $32.04.
“Investors are once again having to contend with an intensifying war of words between the US and China,” said Stephen Brennock of broker PVM. “The coronavirus has nullified a decade of global oil demand growth and the recovery will be slow.”
Oil has slumped in 2020, with Brent hitting a 21-year low below $16 in April and US crude falling below zero. With fuel use rising and supply cuts starting, Brent has since more than doubled and was on track for a fourth weekly gain.
“The oil market is not out of the woods yet,” said Eugen Weinberg of Commerzbank. “We regard the latest price rally on the oil market to be excessive.”
The Organisation of the Petroleum Exporting Countries and allies, known as OPEC+, are reducing supply by a record 9.7 million barrels per day (bpd) from May 1 to support the market.
Export figures suggest OPEC+ made a strong start. In a sign of the glut easing, US crude inventories fell last week.
Gasoline demand is rising and some airlines are planning for a return of European travel. Traders will be keeping an eye on US demand for the Memorial Day weekend, a time when fuel use usually rises.