Oil prices dropped this morning after last week’s gains amid fears that heightening tensions between the US and China could impair global economic recovery from the coronavirus pandemic.
After their first week of gains in over a month last week, both worldwide benchmark Brent crude and US standard West Texas Intermediate (WTI) slipped back.
Having gained 23 per cent last year, Brent crude oil shed three per cent this morning, falling to $25.62.
WTI, which had previously recovered from dramatic price swings to touch the $20 threshold again, dropped nearly eight per cent to $18.26.
Comments last week from President Donald Trump regarding raising tariffs of China have led to fears that recovery could be hindered by a return to the uncertainty that paralysed global markets for the last two years.
Fiona Cincotta of City Index said: “Trump’s threats of a trade tariffs and his growing desire to pull supply chains from China is fuelling fears that the trade deal, signed just that the beginning of this year could be under threat.
“Another round to the US China trade war is the last thing that global economies will be able to cope given their fragility as economies start to ease lock down measures and gradually restart and the markets are clear on that”.
In addition to fears of a renewed trade war, concerns over rapidly filling storage space are still keeping prices down as the oil supply glut continues to grow.
Although oil producing nations under the Opec alliance are set to benign cutting output by record levels this week, the slump in demand has been so great that a substantial overhang will remain regardless of the cuts.
According to the International Energy Agency, demand is set to fall by 26m barrels of oil per day in May, while the Opec cuts only amount to 9.7m barrels per day.
Other countries have signalled that they are prepared to shut in additional output independently, but even this may not go far enough to offset the supply glut.