Oil drops more than 4% in second negative session in three on U.S.-China tensions

An aerial view shows a cruise ship (L) and tanker vessel anchored near the ports of Long Beach and Los Angeles amid the coronavirus pandemic on April 28, 2020 off the coast of Long Beach, California.
Mario Tama | Getty Images

Oil futures tumbled on Wednesday after U.S. President Donald Trump said he was working on a strong response to China's proposed security law in Hong Kong and as some traders doubted Russia's commitment to deep production cuts.

Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman agreed during a telephone call on further "close coordination" on oil output restrictions, the Kremlin said.

Still, many felt Russia was sending mixed signals ahead of the meeting in less than two weeks between the Organization of the Petroleum Exporting Countries and its allies.

The group known as OPEC+ is cutting output by nearly 10 million barrels per day (bpd) in May and June.

"It sounds great on paper, but the market is holding back excitement until we get a few more details about whether there will be cuts, how many barrels will be cut, and the length of the cuts," said Phil Flynn, senior analyst at Price Futures Group.

Brent crude fell $1.43, or 3.95%, to settle at $34.74 a barrel, while West Texas Intermediate crude settled $1.54, or 4.48%, lower at $32.81 per barrel.

Meanwhile, tensions between the U.S. and China continued to rise after China announced plans to impose new national security legislation on Hong Kong, prompting protests in the street.

U.S. Secretary of State Mike Pompeo said he had certified that Hong Kong no longer warrants special treatment under U.S. law as it did when it was under British rule, a blow to its status as a major financial hub.

Gloomy forecasts over the economic impact of the pandemic also weighed on crude.

Economists estimate another 2 million Americans filed initial applications for unemployment insurance last week.

The U.S. Labor Department will report on Thursday. The euro zone economy will probably shrink between 8% and 12% this year, European Central Bank President Christine Lagarde said, warning a the outcome would be between medium and severe.

In another sign of weak fuel demand, Japan's refineries operated at only 56.1% of capacity last week, the lowest since at least 2005.