Trade deal between the two countries have undercut last week’s optimism over a U.S.-Sino thaw that helped to lift crude markets by 2 per cent.
Statistical data available shows Brent crude futures LCOc1 fell by 69 cents to 59.82 dollars a barrel by 0730 GMT, while U.S. West Texas Intermediate (WTI) crude futures CLc1 was at 54.09 dollars a barrel, down 61 cents.
Oil is slowly giving up its recent gains as mini-trade deal scepticism is growing,” Edward Moya, senior market analyst at OANDA, said in an email.
“Since it will take about a month to finalize this partial deal, traders are remembering that we have seen things fall apart in shorter time periods,” Moya said.
The emergence of a phase one trade deal between the United States and China and a goodwill move by Washington to suspend threatened tariffs on Chinese products had initially lifted global financial markets on Monday.
But investors remained cautious given that few details emerged from the talks. “This appears to be similar to past trade talks where the situation appeared rosy, before eventually crumbling down again,” Phillip Futures said in a Monday note.
The trade war has pressured China’s trade, with its exports to the United States falling 10.7 per cent from a year earlier in dollar terms over January-September, Chinese customs spokesman Li Kuiwen told reporters.
China’s imports from the United States have fallen 26.4 per cent in dollar terms during the first nine months. China’s demand for oil was strong, however, with its September imports reflecting a 10.8 per cent rise from a year earlier as refiners ramped up output amid stable profit margins and solid fuel demand.
Despite Monday’s weakness, oil should still see strong support from geopolitical risks from the Middle East, specifically from the Iran-Saudi tensions and the Syrian-Turkish conflict, Moya said.
Investigations are underway to determine if the tanker was hit by missiles, which could ratchet up tensions between Tehran and Riyadh if confirmed.
There are also worries that further escalation along the Syrian and Turkish border could impact output or exports from Iraq, providing more support for oil.