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|10 January, 2019

Oil drops 1% on U.S.-China trade talks, American supply surge

OPEC, partners cutting supply to rein in emerging glut

A worker is seen at the new CPF3 oil station in the Halfaya oilfield in southern of Maysan province, Halfaya, Iraq December 12, 2018.

A worker is seen at the new CPF3 oil station in the Halfaya oilfield in southern of Maysan province, Halfaya, Iraq December 12, 2018.

REUTERS/Essam al-Sudani

LONDON-  Oil prices edged down on Thursday amid a lack of any clear resolution to U.S.-China trade talks and official data that again indicated vast fuel stocks in the United States.

U.S. West Texas Intermediate (WTI) crude oil futures were at $51.89 per barrel at 1200 GMT, down 47 cents, or .9 percent, from their last settlement.

International Brent crude futures were down .85 percent, or 52 cents, at $60.92 per barrel.

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Both benchmarks rose by around 5 percent the previous day, capping off a week-long climb that marked oil's longest sustained rise since last summer.

Global financial markets had surged on hopes that Washington and Beijing may soon end their dispute and avert an all-out trade war between the two biggest economies. 

Some of the positive feeling ebbed on Thursday, however, a day after negotiations wrapped up with mildly positive statements from both sides but few details. 

The U.S. Trade Representative's offices said in a statement on Wednesday that the two sides discussed "ways to achieve fairness, reciprocity and balance in trade relations".

China's Commerce Ministry said the talks "established a foundation for the resolution of each others' concerns".

Vandana Hari of consultancy Vanda Insights in Singapore said oil prices dropped "as optimism fuelled by the U.S.-China trade talks earlier in the week appeared to have run its course, and official statements after the conclusion of three days of negotiations, while indicating modest progress, lacked details".

Meanwhile, U.S. bank Morgan Stanley cut its 2019 oil price forecasts by more than 10 percent on Wednesday, pointing to weakening economic growth expectations and rising oil supply, especially from the United States.

The bank now expects Brent to average $61 a barrel this year, down from a previous estimate of $69, and U.S. crude to average $54, against a prior forecast of $60. 

The main source of new supply is the United States, where crude oil production  remained at a record 11.7 million barrels per day in the week ended Jan. 4, the Energy Information Administration said on Wednesday. 

That has resulted in swelling fuel inventories.

The surge in U.S. production runs counter to efforts led by the Organization of the Petroleum Exporting Countries to cut supply and rein in an emerging glut.

Tamas Varga of PVM Oil Associates warned that recent optimism on hopes of a trade breakthrough may have been fleeting and high global supply could bring a downward price turn.

"We believe it is just a question of time that the actual or perceived supply/demand balance that includes stock level, production data as well as demand figure, will take over."

(Reporting by Noah Browning; Additional reporting by Henning Gloystein in Singapore; Editing by Dale Hudson and Alexandra Hudson) ((Noah.browning@thomsonreuters.com +442075427714))

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