Oil prices dropped late Monday, erasing last week's advances on doubts a global oil surplus may linger in the midst of slumping demand, and renewed trade tensions between China and the U.S. that could hinder economic recovery as coronavirus pandemic lockdowns begin to loosen.
West Texas Intermediate crude futures fell as low as $18.10 a barrel earlier in the day, down $1.14, or 5.8 per cent. Last week, the benchmark contract rose by 17 per cent.
Brent crude futures retreated 24 cents, or 0.9 percent, at $26.20, after reaching a $25.50 low. After three consecutive weeks of losses, Brent rose about 23 per cent last week.
Last week, the market was a little different with several traders pulling money out of the coming June futures contract and spreading it around many deferred contracts in an attempt to avoid being caught on the wrong side of the contract that expires.
Crude oil prices turned negative last month with the expiring May futures contract down to minus $35.73 a barrel for the first time in history.
The Organization of Petroleum Exporting Countries saw production increase by most in nearly 30 years in April, a Bloomberg news agency survey showed, as countries continued producing large quantities of crude even after entering a price-war truce earlier in the month.
In currencies, the U.S. dollar was firm against a host of other key currencies on Monday. Oil prices are typically priced in dollars and a stronger dollar makes crude with other currencies more expensive to consumers.
Last week, the market found support for signs of reduced infection rates and with major oil producers led by Saudi Arabia and Russia expected to start cutting supply on May 1. The top two U.S. producers, Exxon Mobil Corp and Chevron Corp, both said this quarter they'd slash production by 400,000 barrels a day.
Storage issues also continue to weigh on markets with the International Energy Agency (IEA) forecasting that global capacity will hit its peak by mid-June and that energy demand will slow down by a record 6 per cent in 2020 due to lockdowns. WTI and Brent crude oil, however, helped fuel a rally last week due to an easing of worries about growing U.S. stockpiles.
Meanwhile, traders say demand will possibly take more than a year and maybe longer to return to pre-coronavirus rates. The massive surplus built up in March and April over the trade war will also keep prices down even as economic growth picks up.
