By Peter Nurse
Investing.com - Oil markets weakened Monday, as a spat between the U.S. administration and China over the coronavirus pandemic fuelled fears of a new trade war, potentially curtailing already subdued global demand.
At 8:20 AM ET (1220 GMT), U.S. crude futures traded 3,1% lower at $19.16 a barrel, while the international benchmark Brent Oil Futures contract fell 0.9% to $26.20.
U.S. Secretary of State Mike Pompeo on Sunday stated there was "a significant amount of evidence" that the virus emerged from a laboratory in the central Chinese city of Wuhan, without presenting any evidence.
This follows President Donald Trump‘s outburst late last week when he threatened new tariffs on China, the world's largest importer of oil, citing the country’s mishandling of the pandemic.
"The resumption of the trade war will be detrimental to oil prices over the long term," said Stephen Innes, chief global market strategist at financial services firm AxiCorp.
This verbal conflict comes just as the sector had been showing signs that the worst of demand destruction was behind it: some 9.7 million barrels of oil are set to be taken off the market over May and June under the terms of the OPEC+ deal agreed last month, while Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and other U.S. companies have signaled production cuts of their own in recent days.
Lower crude production due to reduced activity and OPEC+ cuts, coupled with a partial recovery in oil demand, should drive prices higher next year, Goldman Sachs (NYSE:GS) Equity Research said in a note.
The Wall Street bank raised its 2021 forecast for global benchmark Brent prices to $55.63 per barrel from $52.50 earlier, and lifted its estimate for U.S. West Texas Intermediate crude to $51.38 a barrel from $48.50 previously.
"Oil production has started to decline quickly from a combination of scaleback in activity, shut-ins and core-OPEC/Russia production cuts. Demand is also beginning to recover from a low base, led by a restarting Chinese economy and inflecting transportation demand in developed market economies," it said.