Oil drops nearly 1% as demand concerns weigh

An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia.
Simon Dawson | Bloomberg | Getty Images

Oil prices fell on Tuesday as a rising number of Covid-19 cases sparked demand fears, although losses were capped after U.S. President Donald Trump soothed jangled nerves over U.S.-China trade.

Trump wrote in a tweet late Monday that the trade agreement was "fully intact." Markets had been unsettled by surprise comments from White House trade adviser Peter Navarro who said the hard-won deal with China was "over".

"Oil prices need a healthy relationship between the U.S. and China," said Edward Moya, senior market analyst at OANDA in New York. He also noted that crude prices pared gains when traders were unimpressed by a U.S. purchasing managers report.

Brent futures fell 45 cents, or 1%, to settle at $42.63 per barrel. West Texas Intermediate crude settled 36 cents, or 0.88%, lower at $40.37 per barrel. On Monday, the contract settled at its highest level since early March.

Prices pared early gains after the U.S. Purchasing Managers' Index (PMI) showed the country's rebound from coronavirus depressed levels was not as sharp as in Europe.

"Looking at the strength of the physical market and recovering global oil demand, we think that the crude oil price is still on its way higher," Nordic bank SEB said in a note.

Bank of America (BofA) Global Research has lifted its oil price forecast for this year. It now expects Brent crude to average $43.70 a barrel in 2020, up from a previous estimate of $37.