Oil on Friday retreated from the highest level in more than two months as doubts over the strength of China’s economic recovery and rising tensions between Washington and Beijing ate away at its weekly advance.
Futures in New York fell 6 percent to less than US$32 per barrel, but were still headed for a fourth consecutive weekly gain.
Beijing said that it would not set a GDP growth target this year due to “great uncertainty” over the COVID-19 pandemic, although it did announce some new stimulus spending.
China National Petroleum Corp’s (中國石油天然氣) research arm forecast that oil product demand in Asia’s largest economy is to drop by 5 percent this year.
However, the backdrop for oil still looks promising as the market rebalances.
US drillers are in the process of curtailing 1.75 million barrels per day of existing production by early next month, IHS Markit Ltd said.
That is on top of an OPEC+ agreement to curb almost 10 million barrels per day of output, which is being strictly adhered to after taking effect at the beginning of this month.
The cuts are eroding the stockpiles built up amid pandemic lockdowns and a Saudi Arabia-Russia price war, with inventories at the US storage hub in Cushing, Oklahoma, shrinking by the most on record last week.
Notwithstanding the doubts over China’s economic recovery and its deteriorating relationship with the US, oil demand in the Asian powerhouse is almost back to prepandemic levels.
Crude’s rapid rebound has taken many in the market by surprise, especially given that the path back to a full economic recovery looks to be long and uncertain, and the risk of a second wave of infections cannot be discounted.
It has also raised the chances that US shale producers would start to turn on the taps again and that the strict compliance with the OPEC+ deal might break down.
“The nascent demand recovery is still vulnerable, and the drop in prices today is an injection of reality,” IHS Markit vice president of energy consulting Victor Shum said in Singapore. “China not giving a GDP target means they are not quite certain about the recovery yet.”
West Texas Intermediate crude for July delivery dropped 6 percent to US$31.90 per barrel on the New York Mercantile Exchange as of 7:47am in London. It rose 1.3 percent on Thursday in a sixth straight gain.
Brent for July settlement fell 4.5 percent to US$34.44 on the ICE Futures Europe exchange and was up about 6 percent for the week.
China’s oil demand earlier this month was probably at 92 percent of levels at the same time last year, IHS Markit said in a report.
Full-year consumption is likely to be about 8 percent less than last year, the energy consultant said.
The oil industry is to enter a structural phase of no production growth outside of OPEC starting next year, Goldman Sachs Group Inc said in a note based on an analysis of upstream projects.
OPEC might be required to supply as much as an additional 7 million barrels per day through to 2025 from prepandemic levels, while US shale would emerge from the current slump as a lower-growth and more cash-generative industry, the bank said.
In other energy trading, wholesale gasoline fell US$0.01 to US$1.04 per gallon and heating oil fell US$0.01 to US$0.98 per gallon, while natural gas rose US$0.02 to US$1.73 per 1,000 cubic feet.
Gold rose US$13.60 to US$1,735.50 per ounce and silver rose US$0.33 to US$17.69 per ounce, while copper fell US$0.05 to US$2.39 per pound.
Additional reporting by AP
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