After posting the first weekly gain in a month, oil prices plunged early on Monday as tensions between the United States and China grew over the origin of the coronavirus, which is battering oil demand and increasing the global oil glut.
At 9:23 a.m. EDT on Monday, WTI Crude was down 3.24 percent at $19.16, and Brent Crude prices were down 1.93 percent on the day, to $25.91.
During the weekend, U.S. Secretary of State Mike Pompeo told ABC News’ ‘This Week’ program that “there’s enormous evidence” that COVID-19 originated in a Wuhan lab.
“China has a history of infecting the world and they have a history of running substandard laboratories. These are not the first times that we’ve had a world exposed to viruses as a result of failures in a Chinese lab,” Secretary Pompeo tweeted on Sunday.
The renewed tension between the two largest economies in the world weighed down on oil prices early on Monday, with WTI Crude losing as much as 7 percent at one point before recouping some of the losses.
The sizable global oil glut with very limited storage space available was also dragging oil prices down, although expectations that demand is slowly beginning to tick up lent some support.
Last week, at the start of the OPEC+ cuts and with mounting evidence that U.S. shale producers would be scaling back production faster and more than expected, oil prices closed the week on the positive note, for the first time in over a month.
While the partial easing of lockdowns in some U.S. states and several European countries – including large economies such as Italy, Germany, and Spain – supported the view that demand will begin to slowly recover, the latest manufacturing data for April was as gloomy as it gets, also weighing on oil prices. In France, manufacturers reported business conditions deteriorating at a record pace in April, according to the IHS Markit France Manufacturing Purchasing Managers' Index, while the same index for Italy showed output and new orders plunged at the fastest pace in over 22 years of data collection.
By Tsvetana Paraskova for Oilprice.com
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The extraordinary measures China has taken under the leadership of President Xi Jipiang have enabled it to control the outbreak and open the country to business again.
Instead of praise, the bashing of China particularly in the United States continues unabated amid accusations that China should be made accountable for intentionally misleading the world about the fact that human transmission of the coronavirus was taking place and impeding US efforts to prevent it spreading into the United States. There were even calls for the US Congress to legislate to strip China of its sovereign immunity and allow people who have been unemployed and the businesses that have been devastated to sue China for damages. However, China will ignore such baseless allegations and will retaliate against any action taken to hold it responsible for the pandemic.
President Trump has a tendency to blackmail countries to achieve financial gains. He blackmailed Saudi Arabia and other Arab Gulf States by claiming that the United States is protecting them and their oil when in fact it is the source of all their troubles. He got away with his blackmail by getting multi-billion dollars of arms deals from Saudi Arabia.
He tried to blackmail China in March 2018 by imposing tariffs on billions of Chinese exports to the United States in almost two years of trade war. China retaliated blow for blow and won the trade war.
He is now considering imposing a tax on all foreign crude oil exports to the United States in order to bail out the bankrupt shale oil industry at the expense of OPEC+ and other oil exporters. This ploy won’t work because major oil exporters will shift their exports to the Asia-Pacific region rather than pay a tax.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London