Oil prices fall on supply glut, fears of 2nd virus wave

Singapore

OIL prices slipped more than 1 per cent on Monday as concerns over a persistent glut and economic gloom caused by the coronavirus pandemic cancelled out support from supply cuts at some of the world's top producers.

Brent crude futures were down 51 cents, or 1.7 per cent, at US$30.46 a barrel by 2.24pm Monday, Singapore time, while US West Texas Intermediate (WTI) crude futures fell 49 cents, or 2 per cent, to US$24.25 a barrel.

Both benchmarks have notched up gains over the past two weeks as countries have eased business and social lockdowns imposed to cope with the coronavirus, and fuel demand has rebounded modestly. Oil production worldwide is also declining.

But possible signs of a second wave of coronavirus infections in north-east China and South Korea worried investors even as more countries started to pivot towards easing pandemic restrictions in moves that could support oil demand.

OCBC economist Howie Lee in Singapore said: "That's definitely a cause for concern as the last thing people want is for lockdowns to happen again across multiple cities, but I think the authorities should be much more prepared right now to cope with a second wave.

"Overall, the risk environment looks quite conducive for further upside," he said, adding that Brent could stay supported at US$30 a barrel.

Global oil demand has plunged by about 30 per cent as the coronavirus pandemic curtailed movement across the world; this development built up global inventories.

Fears that the United States is running out of storage space triggered a crash by WTI prices into negative territory last month, prompting some US producers to slash output.

The number of operating oil and gas rigs in the world's largest oil producer fell to 374 in the week to May 8, a record low according to data released on Friday from energy services firm Baker Hughes Co, which has tracked figures since 1940.

"People are surprised by how quickly the US is shutting in production and that's exactly what we need in order to support prices," said Tony Nunan, a senior risk manager at Mitsubishi Corp in Tokyo. REUTERS