Oil was anchored near $33 a barrel as an escalating war of words between the U.S. and China added to caution over the prospects for a global recovery in demand.
China warned on Sunday that some in the U.S. were pushing the countries toward a new Cold War, stoking concerns that deteriorating relations between Beijing and Washington could complicate the market’s recovery from a historic demand crash. Futures edged higher in New York after falling earlier, with trading volumes thin due to holidays in the U.S., U.K. and Singapore.
However, there are signs the oil market is positioning itself for a recovery. U.S. shale drillers have cut the number of active rigs to the lowest since 2009, trimming output further. This comes as OPEC+ slashes output by almost 10 million barrels a day in an effort to reduce a glut.
Oil has surged about 75% this month as pockets of demand return in China and India after the easing of lockdown restrictions, and as U.S. crude inventories start to decline. But, the recovery is expected to be long and uncertain, with the risk of a second wave of infections possibly complicating a rebound.
“The heightening of tensions between the U.S. and China will continue to sully the landscape,” said Stephen Innes, chief market strategist at AxiCorp Ltd. However, the overall impact may be limited if there’s no “combative retaliation” from Beijing, he said.
The U.S. should give up its “wishful thinking” of changing China, Foreign Minister Wang Yi said during his annual news briefing on the sidelines of National People’s Congress meetings in Beijing. He also warned America not to cross China’s “red line” on Taiwan.
American drillers cut the number of oil rigs at work by 21 to 237 last week, reducing the count for a 10th week, according to Baker Hughes data Friday.
While fuel consumption climbs in some nations with the easing of lockdown restrictions, the cheapest U.S. gasoline in nearly two decades won’t be enough to entice nervous Americans to hit the road for Memorial Day weekend. The uncertainty around travel is so great due to the virus that American Automobile Association is not releasing a forecast for the first time in 20 years.
Big oil annual general meetings in the U.S. and Europe this week should shed light on how heavily producers have been hit by lockdowns, with Total SA, BP Plc, Exxon Mobil Corp. and Chevron Corp. among those fronting shareholders. Meanwhile, Russian President Vladimir Putin has given his government until June 15 to come up with a plan to support the country’s oil industry.