Oil falls as worries on U.S.-China trade negotiations build

[October 08, 2019]    By Bozorgmehr Sharafedin

LONDON (Reuters) - Oil prices fell on Tuesday as Washington's blacklisting of more Chinese companies dampened hopes for a trade deal between the two countries, though unrest in Iraq and Ecuador lent some support to crude prices.

Brent crude <LCOc1> fell 19 cents to $58.16 a barrel by 1035 GMT. U.S. West Texas Intermediate crude <CLc1> was at $52.48, down 27 cents. Both had risen almost 1% earlier in the day.

Investors are treading cautiously before U.S.-China trade talks that take place in Washington on Thursday, although prospects for progress dimmed after Washington blacklisted more Chinese firms and President Donald Trump said a quick trade deal was unlikely.

"It is impossible to predict the outcome of the talks. Anything seems possible – from a partial agreement to another truce or indeed a complete breakdown of the talks. The spectrum of potential price reactions is correspondingly large," said Carsten Fritsch, analyst at Commerzbank.

Hedge funds sold petroleum futures and options for a second week running as a price bounce after attacks last month on Saudi oil facilities evaporated, and attention shifted to a deteriorating global economy.

Saudi oil production was temporarily reduced by the attacks. Riyadh said last week it had fully restored output.

(Major Oil Supply Diruptions: https://fingfx.thomsonreuters.com/
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In the United States, crude inventories are expected to have grown for a fourth week while distillates and gasoline stocks likely fell, a Reuters poll showed on Monday. [EIA/S]

However, protests in OPEC members Iraq and Ecuador threatened to disrupt their oil output and supported prices. The death toll in Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries, has climbed after a week of unrest.

"Unrest in Iraq gained a high profile at the start of October as a result of large protests in Baghdad," RBC analyst Al Stanton said.

He said potential attacks by Turkey on Kurdish forces in northeast Syria could take place close to the Iraqi border, leading to "a refugee crisis that puts pressures on Kurdistan’s economy" and its oil production.

Turkey said it had completed preparations for a military operation in northeast Syria after the United States began pulling back troops.

The energy ministry in Ecuador, one of OPEC's smallest producers which is quitting the group next year, said protests against austerity could reduce its oil output by 59,450 barrels per day.

Ecuador's state-run oil company Petroamazonas EP suspended operations at three oilfields in the Amazon region on Monday.

(Additional reporting by Florence Tan in Singapore; Editing by Dale Hudson and Deepa Babington)

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