Oil prices fell on Monday as a new wave of coronavirus infections in some countries and concern over a persistent glut cancelled out support from supply cuts by the world’s biggest producers.
Possible signs of a second wave of infections worried investors as Wuhan, the epicentre of the coronavirus outbreak in China, on Monday reported its first cluster of infections since the city’s lockdown was lifted a month ago.
South Korea also warned of a second wave of the coronavirus on Sunday as countries across the globe begin to step up efforts to ease coronavirus-related restrictions.
“Concern over a second wave, the nearly 50% year on year drop in Indian oil demand in April and likely further oil inventory builds this week are likely weighing on oil prices at the start of the week,” said UBS analyst Giovanni Staunovo.
Indian fuel demand in April was down 45.8% year on year because of a nationwide lockdown. Consumption of fuel, a proxy for oil demand, totalled 9.93 million tonnes, its lowest since 2007, government data showed on Saturday.
Global oil demand has slumped by about 30% as the pandemic has curtailed movement across the world, building up inventories globally.
To reduce the oversupply, the Organization of the Petroleum Exporting Countries (OPEC) and allied producers - a grouping known as OPEC+ - agreed to cut production from May 1 by about 10 million bpd in an effort to support prices.
Fears that the United States is running out of storage space triggered a crash by WTI prices into negative territory last month, prompting some U.S. producers to rein in 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 going back to 1940 from energy services company Baker Hughes Co (BKR.N).
“People are surprised by how quickly the U.S. is shutting in production and that’s exactly what we need to support prices,” said Tony Nunan, a senior risk manager at Mitsubishi Corp in Tokyo.
“There’s another 10 days before the June contract expires ... if the WTI contract can avoid a crash going into expiry, hopefully we’ve seen the bottom.”
Both benchmarks have notched gains over the past two weeks as fuel demand rebounded modestly as some travel restrictions are eased.