Bart Melek, the head of commodity strategy at TD Securities, notes that oil prices extended their declines on Tuesday, as markets weighed the prospects of a prolonged U.S.-China trade dispute.

• “Brent crude dropped 1.5 percent to just under $58.94/bbl, which tilted the global oil benchmark into bear market territory. While there are worries that China is sitting on tens of millions of barrels of "illegally" exported Iranian crude, these oil price declines seem to be very much driven by the demand side of the equation, as the supply side still looks well-positioned for significantly firmer crude markets.
• OPEC+ continues to be committed to its 1.2 million b/d of reductions and delivered 130k b/d less supply in July, Iran is struggling to ship its product, while US shale producers are not punching above their weight as many had expected.
• US inventories started to erode sharply over the last several weeks. Plus, geopolitical tensions continue to be elevated in the Middle East in the aftermath of another oil tanker being seized by Iran amid claims it was smuggling fuel to Arab States and as Turkey readies to stage an incursion into Syria.
• We shouldn’t underestimate the potential impact of a full-blown trade war between the world’s two biggest economies, as this could very well mean the market significantly overestimated demand growth for oil and we could easily be in a surplus situation in 2020.
• Given the current global trade tensions and the risk of currency wars, demand growth could well drop some 400k b/d next year, which would negate OPEC+ hard work to rebalance the market. As such, a WTI move toward just above $50/bbl which is a technical and psychological support level is very much in the cards, should the US-China trade issues remain unsolved.”