Oil erased earlier gains and traded lower on Thursday morning after weak Chinese industrial data and renewed pessimism about the U.S.-China trade talks added to a rise in U.S. oil inventories to weigh on prices.
On Wednesday, the price of oil came under pressure after the U.S. Energy Information Administration reported a crude oil inventory build of 5.7 million barrels for the week to October 25. Analysts had expected a much smaller build of 729,000 barrels for last week after a 1.7-million-barrel draw interrupted a string of five weekly inventory builds, which added more than 19 million barrels to U.S. commercial crude oil inventories.
On Thursday, oil prices quickly wiped off early gains after China reported six consecutive months of lower factory activity. China’s Purchasing Managers’ Index (PMI) dropped in October, compared to expectations of staying unchanged from September. This exacerbated fears that the Chinese economic growth will further weaken, especially without a U.S.-China trade deal.
On the trade war front, pessimism reigned on Thursday after Bloomberg reported that Chinese officials are signaling doubt about the possibility the U.S. and China could reach a long-term comprehensive trade deal. China will not give in on the stickiest points in the trade negotiations, officials have warned at various meetings in recent weeks, people with knowledge of the matter told Bloomberg. Chinese officials don’t expect any meaningful breakthrough in the talks unless the U.S. offers to roll back some of the tariffs it has slapped on Chinese imports, according to Bloomberg’s sources.
Reports of the Chinese position came as U.S. President Donald Trump said on Thursday that “China and the USA are working on selecting a new site for signing of Phase One of Trade Agreement, about 60% of total deal, after APEC in Chile was canceled do to unrelated circumstances.”
The longer the trade war continues, the longer analysts will come up with pessimistic outlooks on the pace of global economic growth and consequently, oil demand growth.
If oil demand growth continues to languish with uncertainties around the global economy and Brexit, the oil market will likely have to cope with another oversupply next year, the International Energy Agency (IEA) said earlier this week.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com: