Oil prices drop as market reacts to rising COVID-19 cases, US-China tension

Global oil prices slightly dropped early Monday morning, no thanks to the second wave of COVID-19 which Nairametrics understands is influencing investors to focus on safe-haven assets. Another major contributing factor to the price drop is the raging trade tension between China and the USA.

The details

America’s West Texas Intermediate (WTI) crude was down by 0.39% (or 16 cents) to $41.24 a barrel, from $41.40. Similarly, Brent crude dropped by 0.48% to sell at $43.13, having lost 21 cents.

The drop in oil prices is said to be a reflection of the financial markets in Asia. There are concerns about escalating tensions between the world’s two biggest economies, the US and China, especially after both countries closed their embassies in Houston and Chengdu. Also, the rising Coronavirus cases around the world, which have exceeded 16 million, is a major contributory factor.

The backstory and projections

Despite the drop, Brent crude is still expected to experience its fourth monthly gain in July. In the same vein, WTI will rise for a third consecutive month, after unprecedented supply cuts by the Organization of the Petroleum Countries and its allies (OPEC+) including Russia and the United States, helped to stabilize the market, thereby jacking up prices.

Recall that oil demand has also improved significantly after lockdown measures across most parts of the world were eased. This, in turn, has supported crude prices, a situation that has also encouraged the world’s top producers to increase output and exports.

However,  the recovery has been slow because the re-introduction of lockdowns in some parts of the United States and other parts of the world has been limiting oil consumption.

In the meantime, investors are watching out for any impact from storm Hanna which battered the Texas coast over the weekend. Weather forecasts show threatening heavy rains in Texas and Mexico from where some of the world’s daily crude oil outputs come from. Last Friday, oil producers and refiners said they did not expect the storm to affect their operations.

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