Commodities

Oil prices slide as trade wars roil financial markets

Reuters SINGAPORE | Updated on June 03, 2019 Published on June 03, 2019

Oil prices fell more than 1 per cent on Monday, extending losses of over 3 per cent from Friday, when crude markets racked up their biggest monthly losses in six months amid stalling demand and as trade wars fanned fears of a global economic slowdown.

Front-month Brent crude futures were at $61.16 at 0109 GMT. That was 83 cents, or 1.3 per cent, below Friday's close. US West Texas Intermediate (WTI) crude futures were at $52.88 per barrel, down 62 cents, or 1.2per cent from its last settlement.

The drops followed price slumps of more than 3 per cent on Friday, which made May the worst-performing month for crude futures since last November. “Oil prices slid on fresh trade worries after US President Donald Trump stoked global trade tensions by threatening tariffs on Mexico, which is one of the largest US trade partners and a major supplier of crude oil,” said Mithun Fernando, investment analyst at Australia's Rivkin Securities, in a note on Monday.

Edward Moya, senior market analyst at futures brokerage OANDA in New York, said last month's crude oil price fall of more than 10per cent was “the worst May performance in seven years as the escalation of the global trade war saw the global growth outlook crumble”.

Moya warned “geopolitical risks remain in place” and added that “oil remains vulnerable” because of a weakening demand outlook for crude.

“The US-China feud remains most critical to the global growth outlook, but the addition of trade tensions between the US and Mexico raised the slower demand picture for the Americas,” he said.

Barclays bank said in a note published last Friday that US March oil consumption “declined significantly year-on-year for the first time since September 2017...(as) petroleum demand fell almost 370,000 barrels per day (bpd) year-on-year on weak consumption across the barrel.”

Rising US supply

US bank Goldman Sachs said in a note published on Sunday that “escalating trade wars and weaker activity indicators have finally caught up with oil market sentiment”.

Brent crude oil prices have dropped almost 20 per cent from their 2018-peak in late April. “The magnitude and velocity of the move lower were further exacerbated by growing concerns over strong US production growth and rising inventories,” Goldman said.

US energy firms this week increased the number of oil rigs operating for the first time in four weeks, and weekly production last stood at a record 12.3 million barrels per day (bpd).

That's pushed up commercial US crude oil inventories, which have increased by 8.4per cent since the start of the year to 476.5 million barrels. “With an increasingly uncertain macro outlook as well as rising US production and large available core-OPEC spare capacity helping offset declining supply from Iran and Venezuela, we instead expect prices will likely remain around our 3Q forecasts and current levels, albeit with still high price volatility,” Goldman said.

The bank's Brent price forecast for the third quarter of this year was $65.50 per barrel.

Published on June 03, 2019
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