Crude Prices Drop on U.S./China Worries As OPEC Members Warn Against Dwelling In Sentiment

But traders are fixated on whether the proposed trade deal will fly or fail: File Image/Pixabay

Mixed signals regarding the progress of the U.S. and China trade resolution were said to have been responsible - along with a stronger U.S. dollar - for crude prices on Monday taking a dip of over 2 percent.

Brent settled down $1.16, or 1.92 percent, at $59.35 per barrel, while West Texas Intermediate settled down $1.11, or 2.03 percent, at $53.59 per barrel.

This was in sharp contrast to last week's trading, when Brent and WTI rose over 3 percent partly on the strength of Washington and Beijing outlining the first stage of a trade deal and suspending this week's scheduled U.S. tariff hikes - which traders assumed would eventually result in increased crude demand.

But China has since indicated that further discussions are needed, and U.S. treasury secretary Steven Mnuchin said the next round of tariffs on Chinese imports are still set to take effect in December if a deal has not been reached by then.

Jim Ritterbusch, president of Ritterbusch and Associates, summarized Monday's trading activity by remarking, "The complex is in (the) process of relinquishing a major portion of the late week trade inspired gains as conflicting indications out of the U.S. and China regarding trade progress is reducing risk appetite."

John Kemp, commodities analyst for Reuters, lamented that traders are growing "increasingly pessimistic about the global economy" and have led hedge funds and other money managers to sell the equivalent of 95 million barrels in the six most important futures and options contracts tied to petroleum prices in the week to October 8.

He added that "Hedge fund sales are consistent with evidence from business surveys and other economic data suggesting global manufacturing and freight activity has started to shrink in recent months."

But some industry players are weary of the relentless focus on trading behaviour, case in point: Saudi Arabia, whose energy minister prince Abdulaziz bin Salman on Monday reiterated the kingdom's long-standing argument that it was more important to concentrate on the stability of the oil market rather than the price of oil, and that a fair price was a stable price.

Kuwait also stressed the importance of zeroing in on fundamentals rather than dwelling in sentiment and fear: Khaled al-Fadhel, that country's oil minister, told reporters on Monday that the widespread concern of an oil inventories buildup in 2020 "is not something that we have to talk about right now because it's still an assumption."

He added that Kuwait and other Organization of the Petroleum Exporting Countries will continue to monitor the oil market to see whether there was a need for a deeper cut or continue at current levels.