US president criticised Beijing's trade practices at UN General Assembly. PHOTO: REUTERS/FILE
Brent crude futures were down $1.05 at $62.05 a barrel by 1127 GMT, erasing all gains made after an attack on Saudi oil facilities sent the benchmark up around 20% last week.
Nevertheless, the benchmark remains on track for its first monthly gain since June.
US West Texas Intermediate crude dropped to $56.47 a barrel, down $0.82.
"Focus will return to faltering oil demand concerns as there is unlikely to be any quick resolution to US-China trade differences to positively shift economic expectations," global oil strategist at BNP Paribas Harry Tchilinguirian told the Reuters Global Oil Forum. "Barring a repeat attack on Saudi infrastructure, oil will weaken further."
Trump criticised China's trade practices at the United Nations General Assembly on Tuesday and said he would not accept a "bad deal" in US-China trade negotiations.
China is the world's largest oil importer and second-largest crude user. The United States is the largest consumer of oil.
Trump also said he saw a path to peace with Iran, cooling other risk premiums built into oil prices.
"The geopolitical risk premium has all but vanished and bullish catalysts suddenly appear in short supply across the oil market," said PVM analyst Stephen Brennock.
Others, like OCBC economist Howie Lee, saw more potential upside, pointing to the possibility that buyers of Saudi crude could be made to look for supplies in the spot market and push prices higher again if Saudi stocks run out.
"Right now, the market is very concerned about the demand side of the equation, but I would caution against being complacent about what's happening in the Middle East," Lee said.
Commerzbank's Carsten Fritsch echoed this view.
"We regard the price slide as premature because the supply risks should not be ignored. It is reasonable to doubt that Saudi Aramco has already made good the outages in the affected facilities almost completely," he said.
Saudi Arabia has restored its oil production capacity to 11.3 million barrels per day, three sources briefed on Saudi Aramco's operations told Reuters, maintaining a faster-than-expected recovery after the attacks.
To meet its supply obligations to Saudi refineries overseas, Saudi Aramco is buying oil from other Middle East producers.
Prices were also weighed down by an unexpected build in US crude inventories last week.
US crude inventories rose 1.4 million barrels last week, the American Petroleum Institute said on Tuesday, compared with analysts' forecasts of a 200,000-barrel drawdown.
Official government data is due for release at 1430 GMT.
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