West Texas Intermediate for January delivery fell 31 cents to $55.65 a barrel on the New York Mercantile Exchange as of 7.58am. New York time. Brent for February settlement dropped by 31 cents to $60.61 on the London-based ICE Futures Europe Exchange.
Crude has climbed since early October on signs the US and China were edging closer to an initial trade deal. Without a resolution to the standoff, concerns about the strength of global oil demand next year may return.
"The global oil supply-demand balance requires an extension of the current OPEC+ cuts," Goldman Sachs. analysts wrote in a report.
"Already large speculative buying in recent weeks and some expectations for a longer/larger cut suggests that an uneventful three-month extension is unlikely to provide much upside to current prices," they said.
Barring additional oil production cuts by OPEC in 2020, Rystad Energy forecasts a substantial build of global crude stocks and a corresponding drop in oil prices.
According to Rystad Energy's estimates, the global oil market will be fundamentally oversupplied to the tune of 0.8 million barrels per day (bpd) in the first half of 2020.
Empirical evidence has demonstrated that one million barrels per day (bpd) surplus of oil can be expected to cause an oil price decline of around five per cent per month, implying a potential drop of 30 per cent over six months.
"If OPEC and Russia don't extend and deepen their cuts, we could see Brent Blend dip to the $40s next year for a shorter period," said Bjornar Tonhaugen, head of oil market research at Rystad Energy.
"In order to ensure a balanced market, our research indicates that OPEC would need to reduce crude production to 28.9 million bpd - a drop of 0.8 million bpd from the level seen in the fourth quarter of 2019-levels - given our forecast for demand, non-OPEC supply and the impact of new IMO 2020 regulations on global crude runs," he said.
New shipping fuel regulations, the so-called IMO 2020 effect, are expected to create more demand for crude oil in the near-term. However, if the actual effect of the IMO rules on crude demand turns out to be zero the "call on OPEC" - the amount of OPEC oil needed to meet demand - drops by 1.9 million bpd year-on-year to 28.3 million bpd.