Oil prices came under selling pressure midweek, snapping a spectacular five-day rally fuelled by easing economic lockdowns imposed in the wake of the Covid-19 outbreak, which has crippled energy demand around the globe.
There was a turbulent session on 6 May with futures first falling in Asia but later resuming their upwards trend as investors looked ahead at a brightening demand outlook amidst receding restrictions on travel, aviation, and manufacturing activities worldwide.
However, worries about a persistent glut and rising inventories in the US weighed on sentiment and pushed prices down.
Gains pared back
International Brent for July delivery erased an earlier gain of 3% to fall below the key $30 per barrel support level on 6 May. It had later moved up to around $30.20 per barrel in late London trading.
US benchmark West Texas Intermediate (WTI) plunged by almost 4% to fetch around $23.66 per barrel in the early New York session.
Brent prices had soared by around 14% in the previous session in a spectacular rally that followed historic output curbs by Opec and allies to remove almost 10 million barrels per day from an over-supplied market, that had briefly sent US futures into negative territory last month.
Market watchers had been expecting a pullback following five days of straight gains and a report by the American Petroleum Institute (API) that showed US crude inventories rose by 8.4 million barrels last week.
US opening up
US President Donald Trump, keen to reopen the world's largest economy, is moving to wind down his coronavirus task force as early as this month.
Several US states and a growing number of countries in Asia and Europe — including Italy, Spain, Portugal, Austria, Switzerland, India, and Thailand — have moved to open up their economies, paving the way for a quick demand rebound.
It will mark a major shift in his strategy for responding to the devastating outbreak that has crippled global economic growth and slashed demand for commodities.
Several US states and a growing number of countries in Asia and Europe — including Italy, Spain, Portugal, Austria, Switzerland, India, and Thailand — have moved to ease draconian lockdowns imposed in the wake of the Covid-19 outbreak.
US bank Morgan Stanley said that the peak of oversupply in global markets had likely been reached.
“Inventories have built but not quite as strongly as feared: with social distancing measures ramped up in March ... the observed inventory increases have not been quite as strong as feared,” it said in a note. Trump, on 5 May, applauded the price rebound while praising measures by US states to reopen their economies. Trump played a key part in orchestrating the co-ordinated global output curbs led by top producers Saudi Arabia and Russia on 12 April.
Per Magnus Nysveen, Rystad Energy’s chief market analyst, cautioned: "The market is still vulnerable but now one thing is clear, the demand bottom is behind us, and this is manifesting in oil prices which are on the rise.
"Lockdowns are slowly easing across most regions and, in the US, crude markets are also getting less off-balance, but we remain cautious that a balance cannot be achieved without quicker shutdown of fields and wells."
As the oil market recovery builds up, investors seem willing to take on more risk, ignoring the prospect of a renewed trade war between the US and China over Trump’s allegations that Beijing concealed the truth about the origin of the Covid-19 coronavirus.
China’s Foreign Ministry said that tariffs should not be used as a weapon after Trump threatened to impose new ones last week as a retaliatory measure over Beijing’s handling of the coronavirus crisis.
Trump is now determined to wind down the coronavirus task force as early as this month.
US Vice President Mike Pence, who has led the group since it was created in January, said on 5 May that the group's work will be transferred to other parts of the government, including the Federal Emergency Management Agency.
That change could take place this month or in early June, he said.
Trump, who was travelling in Arizona in one of his first forays outside the White House in months, linked the decision to disband the task force with his broader desire to reopen the nation and see its stalling economy recharged.
Winding down the group would signal a new phase in the government's response to the virus, he said.
"I'm viewing our great citizens of this country to a certain extent and to a large extent as warriors. They're warriors," Trump said when asked about the decision.
"We have to open our country. Will some people be affected, badly? Yes. But we have to get our country open."