The spectre of tariffs on a further $200 billion worth of Chinese goods sent commodities lower along with stock markets, as trade tensions between the world's two biggest economies intensified.
Brent crude futures were down 65 cents, or 0.8 percent, at $78.21 a barrel by 0627 GMT, having fallen to as low as $77.60. U.S. crude was down 43 cents, or 0.6 percent, at $73.68.
"Although there is a long deadline on this, if these tariffs are introduced there will be an impact on global growth and demand," McCarthy said.
Washington will consider requests from some countries to be exempted from sanctions it will put into effect in November to prevent Iran from exporting oil, U.S. Secretary of State Mike Pompeo said on Tuesday.
The U.S. pulled out of a multinational deal in May to lift sanctions against Iran in return for curbs to its nuclear programme.
U.S. crude inventories fell last week by 6.8 million barrels, according to data from industry group, the American Petroleum Institute.
Analysts polled by Reuters forecast that crude stocks fell on average by 4.5 million barrels, ahead of government data at 10:30 a.m. EDT (1430 GMT) on Wednesday.
U.S. crude oil production is expected to average more than 12 million barrels per day late next year for the first time, the U.S. Energy Information Administration said in a monthly report on Tuesday.
(Reporting by Aaron Sheldrick; Editing by Joseph Radford and Richard Pullin)
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