Oil Sinks As Analysts Fear U.S./China Talks Could Trigger Demand Destruction

But talks with Iran seem more promising - and could also cause price declines: File Image/Pixabay

Schizophrenic trading behaviour that has seen prices fall one day due to demand concerns then soar the next due to supply worries fell back down again on Wednesday, this time spurred by the notion that upcoming trade talks between the U.S. and China won't result in a resolution of differences.

The sentiment derived from nothing more than analysts loosely predicting what would happen: Thiago Duarte, market analyst at Axi, said, "While the meeting may signal a thaw, expectations for a breakthrough remain low: unless the U.S. receives major trade concessions, further de-escalation seems unlikely."

Even more pessimistic was Robert Yawger, director of the energy futures division at Mizuho Securities USA: he said, "There is a fear that the trade negotiations in Switzerland with China could backfire and turn into a demand destruction event."

Traders on Wednesday also took a dim view of data from the Energy Information Administration showing that U.S. gasoline inventories rose unexpectedly last week, a harbinger to some of what might characterize this summer's driving season; accordingly, crude inventories falling by 2 million barrels to 438.4 million barrels in the week was overlooked.

Offsetting the bearish sentiment somewhat was a generally positive outlook on the ongoing U.S. talks with Iran, which U.S. vice president J.D. Vance described as "so far, so good" and added that a proposed deal would reintegrate the Islamic republic into the global economy at the expense of it getting a nuclear weapon.

As a result of all this, Brent settled down $1.03 at $61.12 per barrel, while West Texas Intermediate settled down $1.02 at $58.07 per barrel.

Unsurprisingly, the U.S. Federal Reserve on Wednesday stated that "Uncertainty about the economic outlook has increased further," and this supported the contention of many experts that its policy rate would remain in the 4.25-4.50 percent range until the Fed's July 29-30 meeting.