By Jessica Resnick-Ault

NEW YORK (Reuters) – Oil prices edged lower on Wednesday as government data showed a surprise rise in U.S. crude inventories and as tensions escalated between the United States and China.

Brent crude futures settled down 3 cents at $44.29 a barrel, while U.S. West Texas Intermediate crude settled down 2 cents at $41.90 a barrel.

U.S. crude and distillate inventories rose unexpectedly and fuel demand slipped in the most recent week, the Energy Information Administration said on Wednesday, as the sharp outbreak in coronavirus cases has started to hit U.S. consumption.

Crude inventories rose by 4.9 million barrels in the week to July 17 to 536.6 million barrels, compared with expectations in a Reuters poll for a 2.1 million-barrel drop. Production rose to 11.1 million barrels per day, up by 100,000 barrels per day.[EIA/S]

“Overall, this would suggest that the demand recovery we’ve seen from the bottom seems to be stalling,” said Phil Flynn, senior analyst at Price Futures group in Chicago.

President Donald Trump said on Tuesday that the outbreak would probably worsen before it got better, a shift from his previously robust emphasis on reopening the economy.

Bjornar Tonhaugen, Rystad Energy’s head of oil markets, said Trump’s comments might be welcomed by investors because they are among the most measured by him or his administration so far.

“This could be a positive for oil demand prospects. Instead of an uncontrolled, disruptive second wave of lockdowns, maybe chances have now increased that the United States will eventually get the spread under control,” Tonhaugen said.

However, a fresh dispute between Washington and Beijing put pressure on prices after the United States told the Chinese consulate in Houston to shut and a source said China was considering closing the U.S. consulate in Wuhan.

Adding to pressure were signs that Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries, was still not meeting its target under an OPEC-led pact to cut supplies.

(Additional reporting by Bozorgmehr Sharafedin in London, Jessica Jaganathan in Singapore; Editing by David Gregorio and Leslie Adler)

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