Oil drops on doubts over demand boost from U.S.-China trade deal

[January 15, 2020]  By Jessica Jaganathan and Dmitry Zhdannikov

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

U.S. 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 U.S.-China trade agreement, even as both sides are expected to sign an interim deal later on Wednesday.

Brent crude <LCOc1> was down 11 cents at $64.38 per barrel by 1020 GMT. U.S. West Texas Intermediate crude futures <CLc1> were down 12 cents at $58.11 a barrel.

"A pickup with global demand for crude may struggle as U.S.-Chinese tensions linger after some hard line stances from the Trump administration," said Edward Moya, analyst at brokerage OANDA.

"Financial markets are disappointed that the Trump administration ... signalled tariffs will remain in place until after the 2020 U.S. Presidential election, depending on whether China comes through on their promises with the Phase 1 agreement."

U.S. President Donald Trump is due 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 U.S. energy supplies.

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

An oil pump is seen just after sunset outside Saint-Fiacre, near Paris, France September 17, 2019. REUTERS/Christian Hartmann

U.S. 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 U.S. Energy Information Administration (EIA) said.

Energy ministers from OPEC member the United Arab Emirates and OPEC ally Russia said on Wednesday they were still committed to meeting in March to decide on future production policies.

Their statements came after Russian news agency Tass reported that OPEC and its allies -- known as OPEC+ -- have started consultations on extending the current output-cutting deal until June without holding a meeting in March.

Keeping the current deal in place until a June meeting "would be seen as much more constructive for the market," ING Economics said in a note. Russia had insisted it wanted the current deal to last only three months. Saudi Arabia wanted a longer time frame for the deal.

(Reporting by Jessica Jaganathan and Dmitry Zhdannikov; Editing by Christian Schmollinger/Kenneth Maxwell/Jane Merriman)

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