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Oil prices fall on demand concerns, trade tension between the United States and China

Image:-Oil prices fall on demand concern

A.S. West Texas Intermediate (WTI) crude CLc1 futures dropped as low as $18.10 a barrel earlier in the session, down $1.01 or 5.1 per cent, down $18.77 at 0658 GMT. Last week, the benchmark contract rose by 17 per cent.

Brent crude LCOc1 futures were 10 cents down, or 0.4 percent, at $26.34, after touching a $25.50 low. After three consecutive weeks of losses, Brent rose about 23 per cent last week.

"Oil is giving up (last week's) gains as optimism fades around global growth prospects, helped by a strengthening U.S. dollar," said Michael McCarthy, chief market strategist at CMC Markets.

The U.S. dollar. DXY signed against a currency basket on Monday. Oil prices are usually priced in dollars so a stronger greenback makes crude with other currencies more expensive to buyers.

"Brent traders have concerns over manufacturing data due from Germany, France and Italy tonight, with their potential to shift the demand destruction argument to the Brent contract," McCarthy added.

Last week, the market found support for signs of reduced infection rates and with major oil producers led by Saudi Arabia and Russia set to start cutting production on May 1. The top two U.S. producers, Exxon Mobil Corp and Chevron Corp, each said this quarter they'd cut output by 400,000 barrels a day.

Combined with loosening business constraints in some U.S. states and cities around the world, the output cuts were expected to ease global fuel glut and pressure on storage tanks, helping drive prices up last week.

Signs that the cuts may help to reduce the supply overhang have emerged with Brent's contango narrowing-the market structure where later-dated prices are higher than prompt supplies.

Brent's six-month spread of futures LCOc1-LCOc7 hit its narrowest in nearly a month at a discount of around $6.50, up from a record wide discount of nearly $14 in late March, reflecting decreasing oversupply expectations and making storage less profitable for later sale.

Yet, a U.S. threat Late last week, President Donald Trump considered raising tariffs on China to retaliate for the spread of coronavirus renewed fears that trade tensions might crush economic recovery, putting a cloak on oil price gains.

"The resumption of the trade war over the long term will be detrimental to oil prices," said Stephen Innes, chief global market strategist at AxiCorp, a financial services firm.

U.S. drillers cut 53 oil rigs in the week to May 1, bringing the total to 325, the lowest since June 2016, said energy services company Baker Hughes Friday.