Oil Prices Enter Bear Market on Demand Concerns

Investing.com - Oil prices flirted with bear market territory on Tuesday as intensifying risks of a global recession from trade tensions caused worries that demand for crude would inevitably be damaged.

New York-traded West Texas Intermediate crude futures fell 26 cents, or 0.5%, to $52.99 a barrel by 9:49 AM ET (13:49 GMT), while Brent crude futures, the benchmark for oil prices outside the U.S., traded down 37 cents, or 0.6%, to $60.91.

Earlier on Tuesday, U.S. crude and Brent both marked a more-than-20% decline from April highs, the definition of a bear market. At the time of writing, they were last down 20.1% and 19.4%, respectively. However, it's still within the comfort zone of many western oil companies. Royal Dutch Shell (LON:RDSa) said earlier Tuesday it can return $25 billion of capital to shareholders in the five years to 2025 if Brent stays at $60.

Escalating trade tensions, particularly between the U.S. and China, have pummeled crude prices as analysts warned that increasing tariffs could throttle demand faster than the likes of OPEC, Russia and U.S. shale drillers can cut back supply.

With no sign of relief in the trade dispute between Washington and Beijing, U.S. President Donald Trump brought the fight back to Mexico with plans to increase tariffs on Mexican goods steadily if it does not step up its game to stop immigrants illegally crossing the border.

Tightening supply from the OPEC-led production cut agreement and U.S. sanctions on Iran and Venezuela had spurred a rally since the beginning of the year, but demand pressures have been building on economic concerns, leading oil to its worst monthly performance in six months in May.

The sell-off will support arguments for extending the output restraint deal when OPEC, Russia and others meet to review it on June 25-26.

“Can OPEC’s voice alone rise above the ‘noise’ of the trade wars in the market now?” said Investing.com senior commodity analyst Barani Krishnan. “The June 25 event is one that oil bulls hope will plug the current selloff in the market, and restore at least some of the gains lost over the past month.”

In other energy trading, gasoline futures slid 1.8% at $1.7100 a gallon by 9:56 AM ET (13:56 GMT), while heating oil traded down 0.3% at $1.8016 a gallon.

Lastly, natural gas futures traded up 0.6% at $2.418 per million British thermal unit.

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