Oil prices had been rallying overnight on Chinese trade talk hopes but a drop in German factory orders and reports that China is looking to strike back at the U.S. over its Chinese tech list raised more concerns about oil demand. The German factory orders fell 0.6% in August, twice as much as forecast by economists and it signaled more problems for the economy in Europe.

Yet it was a story surrounding the U.S.-China trade talks that sent the market downward. Bloomberg News reported that “China signaled it would hit back after the Trump administration placed eight of the country’s technology giants on a blacklist over alleged human rights violations against Muslim minorities." Asked Tuesday whether China would retaliate over the blacklist, foreign ministry spokesman Geng Shuang told reporters “stay tuned.” He also denied that the government abused human rights in the far west region of Xinjiang.” Obviously, this is casting a darker shadow on the trade talk optimism that we saw yesterday.

The Fox Business Network - that is invested in you! - reported that, “White House economic adviser Larry Kudlow said Monday he is optimistic that trade officials from the U.S. and China could make progress on a deal and that the administration is open to proposals Beijing brings to the negotiating table." Kudlow said, "the U.S. is open to a short-term deal as long as "structural issues," like market access for U.S. companies and the Chinese government subsidizing state-owned companies, are addressed. “We are open to a number of ideas, some may be short term, some may be long term,” Kudlow told reporters outside the White House on Monday. “It’s essential that the structural issues that we've talked about for two years since I’ve been around ... that stuff’s gotta get solved.” Those comments gave the oil a big push putting the front-month crude over $54.00 for a time but then gave up gains after President Trump said later that he would prefer a  "long-term big” deal. He also warned China that if the country does anything “bad” to stop the protests in Hong Kong it could bring an end to US-China trade talks. “They have to do that in a peaceful manner,” Trump said.

Reports that Saudi Arabia was importing large amounts on naphtha seems to suggest that their claims of being back to normal are greatly exaggerated. This will open the window for U.S. oil exports. Reports suggest that the EIA missed a large number of exports last week and will have to subtract that from the total.

The API probably had it right last week. In the meantime, back to supply and demand, we are in the heart of maintenance season for oil and we expect to see a counter-seasonal draw this week. Look for API to draw 1.0 million barrels tonight and the EIA to draw 4.0 million barrels. Strong product demand should cause a drop in both gas and distillate around 2.0 million barrels apiece. Refinery runs will stay steady.

Natural gas bulls are rooting for this blast of winter to give them support. The early blast could cause problems for farmers and harvest and possibly hurt some crops.