Oil eases on concerns over U.S.-China talks, weak demand signals

By Devika Krishna Kumar

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

Early in the session, both Brent crude <LCOc1> and West Texas Intermediate (WTI) <CLc1> rose more than 1%. But at settlement, Brent was down 11 cents, or 0.2% at $58.24 a barrel while WTI <CLc1> fell 12 cents, or 0.2%, at $52.63.

Prices extended losses slightly in post-settlement trade after American Petroleum Institute data showed U.S. crude inventories rose by 4.1 million barrels in the week ended Oct. 4, far surpassing the 1.4 million barrels analysts had forecast.

Investors were cautious ahead of U.S.-China trade talks in Washington on Thursday. U.S. President Donald Trump said a quick trade deal was unlikely.

Washington is moving ahead with discussions over possible restrictions on capital flows into China, with a focus on investments by U.S. government pension funds, Bloomberg reported.

The U.S. Energy Information Administration (EIA) cut its 2020 world oil demand growth forecast by 100,000 barrels per day (bpd) to 1.30 million.

The oil market "will be forced to focus more succinctly on global oil demand deterioration as it negotiates through the monthly series of agency reports the rest of this week," Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

Oil prices were also pressured by an unexpected decline in U.S. producer prices in September, which could give the Federal Reserve room to cut interest rates again this month.

U.S. stocks tumbled and the pan-European STOXX 600 index <.STOXX> fell 1%.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned that global economic deceleration could turn into "a more massive slowdown" without action to resolve trade conflicts and support growth.

"The market's focus remains on trade tensions and oil demand concerns, ignoring the elevated geopolitical tensions in the Middle East and lower OPEC production in September," said UBS oil analyst Giovanni Staunovo. "Growing recession risks have capped the upside of oil prices."

Official weekly data from the U.S. EIA is due Wednesday at 10:30 a.m. ET. Analysts forecast crude inventories in the United States would show a fourth week of growth while gasoline stocks fell, a Reuters poll showed on Monday. [nL3N26T3EH]

The EIA said U.S. crude production is expected to rise by 1.27 million bpd in 2019 to a record 12.26 million bpd, slightly above its previous forecast for a rise of 1.25 million.

Oil prices drew some support from protests in OPEC members Iraq and Ecuador which threatened to disrupt their oil output.

In Iraq, protests resumed overnight in Baghdad's Sadr City district.

"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.

Ecuador's energy ministry said protests against austerity could reduce its oil output by 59,450 bpd.

Saudi Arabia reiterated that it was ready to meet global oil needs. Installations belonging to Saudi Aramco were attacked on Sept. 14, hitting output and triggering a spike in oil prices.

Graphic: Major Oil Supply Diruptions (https://fingfx.thomsonreuters.com/gfx/editorcharts/OIL-DISRUPTIONS/0H001QX9E8N8/eikon.png)

(Additional reporting by Bozorgmehr Sharafedin in London and Florence Tan in Singapore; Editing by Nick Zieminski, Bill Berkrot and David Gregorio)