Oil prices drop as global demand seen to struggle

SINGAPORE (Reuters) – Oil prices slipped on Wednesday on concerns that the pending Phase 1 trade deal between the US and China, the world’s biggest oil users, may not boost demand as the US intends to keep tariffs on Chinese goods until a second phase.

US Treasury Secretary Steven Mnuchin said late on Tuesday that tariffs on Chinese goods will remain in place until the completion of a second phase of a US-China trade agreement, even as both sides are expected to sign an interim deal later on Wednesday.

Brent crude was down 19 cents, or 0.3 percent, at $64.30 per barrel by 0428 GMT. US West Texas Intermediate crude futures were down 19 cents, or 0.3 percent, at $58.04 a barrel.

“A pickup with global demand for crude may struggle as US-Chinese tensions linger after some hardline stances from the Trump administration,” said Edward Moya, analyst at brokerage OANDA.

“Financial markets are disappointed that the Trump administration ... signaled tariffs will remain in place until after the 2020 US Presidential election, depending on whether China comes through on their promises with the phase-one agreement.”

US President Donald Trump is slated to sign the Phase 1 agreement with Chinese Vice Premier Liu He at the White House on Wednesday. That agreement is expected to include provisions for China to buy up to $50 billion more in US energy supplies.

Adding to worries over US-China trade relations, the US government is nearing publication of a rule that would vastly expand its powers to block shipments of foreign-made goods to Chinese technology giant Huawei, according to two sources.

Meanwhile, US crude inventories rose by 1.1 million barrels, data from the American Petroleum Institute showed, countering expectations for a draw.

US oil production is expected to rise to a record of 13.30 million barrels per day in 2020, mainly driven by higher output in the Permian region of Texas and New Mexico, the US Energy Information Administration (EIA) said.