By Barani Krishnan 

Investing.com – Oil prices fell nearly 4% on Wednesday as a smaller weekly draw forecast for U.S. crude and continued political troubles for big-buyer China snapped a two-day rally built on little more than hype over the U.S. economic reopening from Covid-19 lockdowns.

West Texas Intermediate crude’s front-month contract, , settled down $1.54, or 4.4%, at $32.81 per barrel.

, the London-traded global benchmark for oil, fell $1.43, or 4%, to settle at $34.74.

Analysts believe the Energy Information Administration will report on Thursday that fell by around 2.5 million barrels for the week ended May 22, making up just about half of the draw seen in the previous week to May 15.

Offsetting the smaller crude draw will be a reduced build likely in that possibly rose by 1.3 million barrels versus a previous 3.8 million, forecasts showed.

Even so, , the most keenly-watched number in the forthcoming EIA report due to demand anticipated in the run-up to this past Monday’s Memorial Day holiday, likely fell by just a modest 33,000 barrels. While that was still a positive number compared to the previous week’s build of 2.8 million barrels, it was underwhelming based on expectations ahead of the holiday. To see the full impact of Memorial Day road travel, traders will have to wait for another EIA dataset for the week to May 29. 

As of Wednesday, WTI was still down 46% on the year. But it has also rallied more than 200% since hitting a bottom of $10.07 a month ago, driven by an alarming cut in oil rigs and well shut-ins by U.S. drillers responding to crash in demand for fuel from Covid-19. Brent has also jumped in the same period by global production cuts coordinated by OPEC, though its gains have not been as much.

Separately, latest by the U.S. Commodity Futures Trading Commission showed that seven consecutive weeks of buying in WTI has taken the net long position held by money managers in U.S crude to a 20-month high.

“I must admit that what I really want to do is tell people to be short oil here, but it’s hard to fight a trend and always difficult to judge when the buying is done,” said Scott Shelton, energy futures broker at ICAP (LON:) in Durham, N.C. 

“There are many warning signs out there with CFTC positioning in WTI, weak margins, and likely more U.S. and Canadian crude being produced for June. While all of this suggests that the front end of the WTI market could be prone to a selloff, I struggle to fight the equity markets and the COVID trends which are clearly ‘better than expected’. I also struggle to fight in the inventory data which is clearly ‘better than expected’.”

Oil prices also came under pressure after a Supreme Court judge in Canada ruled against Meng Wanzhou, the chief financial officer of China’s tech giant Huawei who is fighting extradition to the United States for alleged violation of U.S. sanctions against Iran. Meng’s extradition could worsen already strained ties between Beijing and Washington.

Secretary of State Mike Pompeo announced today that the U.S. no longer considered Hong Kong autonomous of China.

A potential deterioration in relations between the world’s two biggest economies could ratchet up the pressure on global businesses and oil demand already weakened by the coronavirus pandemic.