Oil falls as Donald Trump ramps up pressure on China over Hong Kong

London — Oil prices fell on Wednesday after US President Donald Trump said he was working on a strong response to China’s proposed security law in Hong Kong.

A potential deterioration in relations between the world’s two biggest economies could ratchet up the pressure on global businesses and oil demand already weakened by the coronavirus pandemic.

Brent crude fell 53c, or 1.5%, to $35.64 by 8.27am GMT and US West Texas Intermediate (WTI) crude was down 50c, or 1.5%, at $33.85.

“Simmering US-China tensions added pressure on crude again,” said Avtar Sandu, senior manager commodities at Phillip Futures.

Gloomy forecasts over the economic impact of the pandemic also weighed on crude prices. The eurozone economy is likely to shrink between 8% and 12% this year, European Central Bank  (ECB) president Christine Lagarde said, warning that a mild scenario is already outdated and the outcome would be between the medium and severe.

Traders were also paying attention to early signals on a meeting between oil cartel Opec and its allies, including Russia (Opec+) in less than two weeks.

Opec+ is cutting output by nearly 10-million barrels per day (bpd) in May and June, but the question is whether it will continue to do so as demand recovers after the easing of Covid-19 lockdowns in many countries.

“Stock builds are falling and the market will be balanced in June, so who wants to willingly forgo millions of crude barrels in sales if they’re able to sell it in a recovering market,” said Rystad Energy’s head of oil markets, Bjørnar Tonhaugen.

US crude inventories are forecast to have fallen for a third week last week, according a Reuters poll of analysts.

Global energy investment is expected to fall by about 20%, or $400bn, this year because of the pandemic, the International Energy Agency (IEA) said on Wednesday.

Reuters