Crude oil prices fall but remains set for biggest monthly gain in years

US West Texas Intermediate (WTI) crude was down $1.28, or 3.8 per cent, at $32.43.

LONDON: Oil prices were dragged sharply lower on Friday by weak US fuel demand, fears of a second wave of coronavirus cases in South Korea and a worsening in US-China relations, but were still on track for a hefty monthly gain.

July Brent crude fell $1.16, or 3.3 per cent, to $34.13 a barrel by 0927 GMT while the more active August contract fell $1.11, or 3.1 per cent, to $34.92. US West Texas Intermediate (WTI) crude was down $1.28, or 3.8 per cent, at $32.43.

Both contracts were on course for their first weekly loss after for consecutive weeks of gains that leave them set for the biggest monthly gains in years thanks to production cuts and optimism over Chinese-led demand recovery, analysts said.

WTI is on track for a record monthly gain of 72 per cent in May, with Brent set for a 35 per cent increase that would represent its strongest monthly rise since March 1999.

"The global reaction to China's move to propose new security laws for Hong Kong continues to increase, while there's a score of new COVID-19 cases in South Korea," said Rystad Energy's head of oil markets, Bjornar Tonhaugend.

US President Donald Trump is due to announce his response to the situation in Hong Kong later on Friday.

Thursday's data from the Energy Information Administration showed that US crude oil and distillate inventories rose sharply last week. Fuel demand remained slack even as various states lifted travel restrictions they had imposed to curb the coronavirus pandemic, analysts said.

Looking ahead, traders will be focusing on the outcome of talks on output cuts between the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, in the second week of June.

Saudi Arabia and some OPEC members are considering extending record production cuts of 9.7 million barrels per day beyond June, but have yet to win support from Russia.