Oil drops more than 1 per cent on concern over US-China trade war

An oil pumpjack is seen in La Canada de Urdaneta, Venezuela October 1, 2019. Picture taken October 1, 2019. [REUTERS/Jose Nunez]

Oil prices fell more than 1 per cent on Monday amid concerns over the prospects of a trade deal between the United States and China, while worries about oversupply also weighed on the market.

Brent crude was down 69 cents, or 1.1 per cent, at $61.82 by 0730 GMT. The contract rose 1.3 per cent last week.

U.S. crude was 63 cents, or 1.1 per cent, lower at $56.61 a barrel, having risen 1.9 per cent last week.

U.S. President Donald Trump said on Saturday that trade talks with China were moving along “very nicely,” but the United States would only make a deal with Beijing if it was the right one for America.

The 16-month trade war between the world’s two biggest economies has slowed economic growth around the world and prompted analysts to lower forecasts for oil demand, raising concerns that a supply glut could develop in 2020.

Trump also said there had been incorrect reporting about U.S. willingness to lift tariffs as part of a “phase one” agreement, news of which had boosted markets.

Underlining the impact of the trade war, data over the weekend showed that China’s producer prices fell the most in more than three years in October, as the manufacturing sector weakened, hit by the dispute and declining demand.

“China delivered a massive deflationary shock in its factories, providing a somber tone towards the fragile state of the global economy,” Samuel Siew, analyst at Phillip Futures, said in a note.

Auto sales in China fell for a 16th consecutive month in October, with the number of new energy vehicles sold contracting for the fourth month in a row, data showed on Monday.

Investors are also concerned about excess supplies of crude, analysts said.

The oil market outlook for next year may have upside potential, OPEC Secretary-General Mohammad Barkindo said last week, suggesting there is no need to cut output further.

The Organization of the Petroleum Exporting Countries and its allies led by Russia meet in December. The so-called OPEC+ alliance, seeking to boost oil prices, has since January cut output by 1.2 million barrels per day until March 2020.

Money managers boosted their net long U.S. crude futures and options positions in the week to Nov. 5 by 22,512 contracts to 138,389, the U.S. Commodity Futures Trading Commission (CFTC) said.

In the United States, energy companies last week reduced the number of oil rigs operating for a third week in a row. Drillers cut seven rigs RIG-OL-USA-BHI in the week to Nov. 8, bringing the total count down to 684, the lowest since April 2017, Baker Hughes said.