As the increasing number of coronavirus cases and mounting friction between China and the USA weighed on the market, oil prices fell on Monday as investors flocked to safe-haven assets. Brent crude fell 8 cents, or 0.2 percent, to $43.26 a barrel by 0403 GMT. The US West Texas Intermediate (WTI) crude slumped to $41.22 a barrel, down 7 cents, or 0.2 percent.

The plunge in oil prices reflected the change in broader Asian financial markets as the ties between the two superpowers worsened due to the retaliatory shutdowns of consulates in Houston and Chengdu, and the global COVID-19 cases surpassed 16 million.

Uneven Economic Recovery Path

Still, Brent is on track for a fourth straight monthly gain in July and WTI is set to rise for a third month as unprecedented supply cuts from the Organization of the Petroleum Countries and its allies including Russia propped up prices. Output has also fallen in the United States.

Oil demand has improved somewhat from the deep trough of the second quarter, supporting prices, although the recovery path is uneven as the resumption of lockdowns in the United States and other parts of the world is capping consumption. "Oil appears to be caught between opposing forces, crushing price volatility and ranges," said Jeffrey Halley, OANDA's senior market analyst for the Asia Pacific.

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Investors are also watching for any impact from storm Hanna, which battered the Texas coast over the weekend, threatening heavy rains in Texas and Mexico. Oil and gas producers and refiners said on Friday that they did not expect the storm to affect operations. The rebound in oil prices from lows hit earlier this year has also encouraged the world's top producers to increase output and exports again.

Saudi Arabia Largest Crude Supplier

The US oil rig count rose last week for the first week since March after producers added one rig, Baker Hughes data showed, a sign that US oil production decline may have bottomed out. "Whilst we believe rig activity has bottomed, we don't expect to see a quick recovery anytime soon at current price levels," ING analysts said in a note.

Russian oil exports from its western ports are set to rise 36 percent in August from July, according to the preliminary loading plan and Reuters calculations. The world's top exporter Saudi Arabia again topped the chart of crude suppliers to China in June, supplying 2.16 million barrels per day, or nearly 17 percent of China's record imports for the month.

(With inputs from agencies)