Oil dips 2% as coronavirus demand concerns weigh

The silhouette of an oil pump is seen at sunset.
Pramote Polyamate | Getty Images

Oil prices fell 2% on Thursday on a surge in coronavirus cases that triggered fears of a hit to demand and the latest diplomatic spat between the United States and China, outweighing the benefit of a weaker dollar.

Brent futures fell $1.01, or 2.3%, to $43.28 a barrel, while West Texas Intermediate crude settled 1.98%, or 83 cents, lower at $41.07 per barrel.

Both benchmarks earlier traded close to four-month highs hit a few days ago.

The U.S. dollar was trading at its lowest against a basket of currencies since September 2018. A weaker dollar usually spurs buying of dollar-priced commodities, like oil, because they become cheaper for holders of other currencies.

A rise in U.S. oil inventories also weighed on prices.

U.S. crude and distillate inventories rose unexpectedly and fuel demand slipped last week, the U.S. Energy Information Administration said on Wednesday.

U.S. coronavirus cases approached 4 million on Thursday, with more than 2,600 new cases every hour on average - the highest rate in the world, a Reuters tally showed.

"The oil demand outlook should struggle in the short term as geopolitical tensions put global trade relations at risk and as the coronavirus spread seems to have crippled reopening momentum," said Edward Moya, senior market analyst at OANDA in New York.

Adding to the market uncertainty, U.S.-China relations deteriorated as Washington gave Beijing 72 hours to close its consulate in Houston after spying allegations.

The Chinese Foreign Ministry said the move had "severely harmed" relations and that China would be forced to respond.