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Oil prices drop as China-U.S. tensions grow, Beijing fails to set economic growth target

TOKYO (Reuters) – Oil prices fell on Friday as tensions rose between the U.S. and China and as Beijing failed to set target for economic growth this year, stoking concern that the coronavirus pandemic will overshadow fuel demand in the world’s second-largest oil user.

FILE PHOTO: A TORC Oil & Gas pump jack is seen near Granum, Alberta, Canada May 6, 2020. REUTERS/Todd Korol/File Photo

Brent crude was trading down $1.43, or 4%, at $34.63 a barrel by 0630 GMT, after falling to as low as $33.54.

West Texas Intermediate (WTI) crude dropped by $1.81, or 5.3%, to $32.11 a barrel, having slumped to $30.72 earlier.

Oil prices have risen sharply in recent weeks and are still on track for a fourth weekly gain after the depths plumbed in April when U.S. crude fell below zero.

However, markets were disappointed at China’s decision not to set an economic growth target this year, as the National People’s Congress (NPC) kicked off a week-long meeting.

Rising tensions between the U.S. and China over trade and Beijing’s plan to implement national security legislation in Hong Kong is hitting oil and other markets, analysts said.

U.S. President Donald Trump warned of a strong reaction over the attempt to assert more control over the former British colony.

“We have had a number of reasons why there is caution in oil trading today and given the strength of the gains we have seen (in recent weeks) it’s not a surprise to see people taking some risk off the table,” before the weekend, said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

Volumes were about double the average for the Asian session, he said, suggesting “real commitment” in the pullback.

Still, gasoline demand is returning, with traffic congestion in some of the world’s capitals recovering to year-earlier levels after the lifting of coronavirus restrictions, data prepared for Reuters shows.

The upcoming Memorial Day holiday weekend typically kicks off the U.S. summer driving season.

U.S. crude inventories fell last week against expectations of a rise, official data showed this week.

(GRAPHIC: Weekly changes in petroleum stocks in the U.S. – here)

Reporting by Aaron Sheldrick; Editing by Christian Schmollinger and Richard Pullin

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