Oil slumps 2.5% on oversupply fears, US-China trade talk concerns

Oil fell more than $1 a barrel on Tuesday on concerns about excess global crude supply and limited progress toward resolving the US-China trade dispute that has clouded the outlook for oil demand.

Brent crude futures fell $1.53, or 2.5 per cent, to settle at $60.91 a barrel. US West Texas Intermediate (WTI) crude futures lost $1.84, or 3.2 per cent, to settle at $55.21 a barrel.

Brent has rallied about 15 per cent this year, supported by a pact by the Organization of the Petroleum Exporting Countries and its allies, including Russia - a group known as OPEC+ - to cut combined oil output by 1.2 million barrels per day from Jan. 1.

Russia is unlikely to agree to deepen cuts in oil output at a meeting with fellow exporters next month, but could commit to extend existing curbs to support Saudi Arabia, three sources said.

OPEC and its allies will consider whether to deepen cuts to crude supply when they next meet in December due to worries about weak demand growth in 2020, sources from the oil-producing club said.

"We expect uneasy talks in December. Russia will not categorically agree to (deepen) cuts in winter," a source familiar with the matter said.

The news on Russia's stance sent oil prices lower as investors worried about potential oversupply. But Jim Ritterbusch, president of Ritterbusch and Associates, was dismissive of supply concerns.

"We will reiterate that Brent pricing at or below the $60 mark will be increasing the odds of an additional reduction in production out of the upcoming OPEC talks capable of erasing what appears to be a modest supply surplus," Ritterbusch said.

Further weighing on prices, a Chinese government source was quoted by CNBC on Monday as saying there was gloom in Beijing about prospects for a trade deal. The long-running dispute has hit economic growth prospects.

"The less than promising reports coming from China on the trade war may have taken some of the energy out of the rally," said Craig Erlam, analyst at brokerage OANDA.

"We're certainly seeing less momentum in the recent rallies."

Oil prices were also hit by a larger-than-expected rise in Norwegian oil production and the prospect of a further increase in US crude inventories, suggesting ample supplies.

Norway's production rose in October to beat the official forecast as output from the Johan Sverdrup field began ahead of schedule. This is the largest field to come on stream in the North Sea - home of the Brent contract - for years.

The average estimate of analysts polled by Reuters was for US crude inventories to have risen by about 1.5 million barrels last week, representing a fourth consecutive weekly gain. 

The American Petroleum Institute releases its supply report at 4:30 p.m. EST (2130 GMT) on Tuesday and the government's official figures are due on Wednesday.

Oil found some support from tension in the Middle East, home to top exporter Saudi Arabia and other core OPEC members. Protesters in Iraq blocked a commodities port on Tuesday.