U.S. benchmark oil futures settled lower on Monday, as Beijing-Washington tensions raised concerns over the prospects for crude demand.
Global benchmark oil prices, however, finished higher on the heels of a report that major oil producers may meet earlier than previously planned, and discuss an extension to current crude output cuts.
“Fresh geopolitical concerns are adding new sources of downside risk for the market to grapple with, headlined by an increasingly tense U.S.-China relationship and an increasingly tense situation across major U.S. cities,” said Robbie Fraser, senior commodity analyst at Schneider Electric.
“On the supportive side though, reports indicate the OPEC+ group is looking for at least a short-term extension of their record supply cuts, which are targeted to remove 9.7 [million barrels per day] of supply among participating members,” he said in a daily market update. “There are also indications that the group’s formal meeting could be moved up, shifting discussions to later this week.”
Russia and members of the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, were moving toward an agreement to extend current output cuts by one or two months, Reuters reported on Monday, citing people familiar with talks. The report comes ahead of a meeting of OPEC and its allies, which could occur on June 4, instead of a previously scheduled June 9-10, Reuters also reported.
“If talks do end with an extension of the agreement without reducing cut levels, the market is likely to see some renewed buying interest,” said Fraser. “However, demand numbers should remain a source of concern moving forward, as COVID-19 remains a challenge, even as new geopolitical headwinds for crude and the broader economy emerge.”
West Texas Intermediate crude for July delivery CL.1, 0.17% CLN20, 0.17% lost 5 cents, or 0.1%, to settle at $35.44 a barrel on the New York Mercantile Exchange. Front-month U.S. benchmark WTI futures rose 88.4% for May, for its best month on record, based on data going back to 1983, according to Dow Jones Market Data.
Global benchmark Brent saw its August contract BRNQ20, 0.31% edged up by 48 cents, or 1.3%, to $38.32 a barrel on ICE Futures Europe. The July contract expired on May 31. Front-month prices for Brent rose 39.8% for the month, which was the strongest monthly rise since March 1999.
Back in April, OPEC and its allies forged a historic pact to reduce global output by 9.7 million barrels per day, but those cuts, which began in May, are scheduled to terminate at the end of June.
“The current proposal is to extend the production by at least one month and a maximum of three months. If agreed, the move can further strengthen the [WTI, the U.S. benchmark] crude oil price and Brent oil prices,” wrote Naeem Aslam, chief market analyst at AvaTrade in a Monday research note.
A combination of world-wide output cuts and some brewing optimism about demand for crude have helped boost crude prices from lows as business lockdowns caused by measures to curb the spread of the novel strain of coronavirus recede.
However, investors continue to watch strained relations between the U.S. and China with Bloomberg News reporting on Monday that Beijing has halted some imports of U.S. soybeans, potentially adding to Sino-American friction, which could add pressure on crude prices if it results in an erosion of the hard-won, phase-one trade agreement.
Tensions between the two nations have climbed again in recent weeks with U.S. officials expressing anger over how China handled the coronavirus outbreak and President Donald Trump on Friday saying he would end the special status of Hong Kong, due to China’s imposition of national-security laws.
July natural gas NGN20, 0.68% ended at $1.774 per million British thermal units, down 4.1%.
Natural-gas prices are “down hard with no bullish news to support any rally,” said Dan Flynn, an analyst at The Price Futures Group, in a daily note. “Just to get this market started we would need hot weather and exports to pick up dramatically.”