Oil prices slip on demand worries even as Covid lockdowns begin to ease

Oil prices fell on Wednesday on revived concerns over how quickly fuel demand will recover even as coronavirus lockdowns begin to ease in many countries, while US-China tensions added to negative sentiment.

Brent crude futures fell 21 cents, or 0.6 per cent, to $35.96 by 0120 GMT. US West Texas Intermediate (WTI) crude futures were down 31 cents, or 0.9 per cent, at $34.04 a barrel, the Reuters reported.

The Organization of the Petroleum Exporting Countries and producers including Russia, a grouping referred to as OPEC+, are cutting their output by nearly 10 million barrels per day in May-June to buttress prices as measures to rein in the coronavirus pandemic have slashed fuel demand.

In the United States, where some states are opening up after lockdowns, optimism about an increase in demand has supported sentiment, but the recovery is fragile, analysts caution. The Memorial Day holiday just passed typically heralds the start of the peak US demand season.

"Early estimates suggest gasoline demand is down by as much as 30 per cent from last year as people stay close to home," ANZ Research said in a note.

Morgan Stanley on Tuesday raised its year-end Brent price forecast to $40 per barrel, citing a faster-than-expected balance in global oil demand and supply as countries ease coronavirus restrictions and major producers cut supply.

"We expect demand to rebound to about 97 million barrels per day (bpd) by Q4 as economies come out of lockdown - a significant improvement although still down about 4 million bpd year-on-year," the bank said.

The bank further expects supply to decline towards year-end across both the OPEC and non-OPEC, and said that will lead to an oil market that is 4 million-6 million bpd undersupplied during Q4 2020 and Q1 2021.