Journalists interview oil Ministers on the sidelines of the 176th meeting of the Organization of the Petroleum Exporting Countries (OPEC) conference and the 6th meeting of the OPEC and non-OPEC countries on July 1, 2019 in Vienna, Austria. JOE KLAMAR | AFP | Getty Images

The success, or failure, of trade talks between the U.S. and China will be a decisive factor in the oil price outlook this year, despite OPEC's decision to extend production cuts, oil market expert Amrita Sen told CNBC on Tuesday. "I know (Saudi Arabian Oil Minister Khalid) Al Falih said that the second-half of the year (demand) outlook looks better but so much depends on the trade deal, on the truce between the U.S. and China, and global demand has slowed down considerably," Sen who is a chief oil analyst at Energy Aspects told CNBC Tuesday. "China (demand for oil) hasn't collapsed at all, it's still growing slower, but it's just that lack of confidence, companies have just stopped investing and placing orders and we've seen very weak numbers out of other parts of Asia and Europe as well," she added.

Sen hoped that a "truce" between the U.S. and China on its trade dispute reached at the weekend by President Trump and President Xi, in which they agreed to hold off on any new trade tariffs on each other's imports while trade talks resume, could restore confidence that would fuel oil demand. "But if that doesn't come back quickly, all of the second half (of 2019) and into 2020 things will be weak," Sen told CNBC's Dan Murphy in Vienna, where oil producing group OPEC and its non-member allies like Russia are meeting currently. A potential interest rate cut by the U.S. Federal Reserve this year and the incentive to forge strong economic growth in the U.S., ahead of the 2020 presidential election, could provide extra impetus for oil market demand, Sen said. "There will be some momentum to solve some of these trade wars. If demand is good I think oil prices have a lot of upside here and into next year," she said. "If demand growth is even 1 million barrels per day I think we could easily be $75 (the price per barrel) if not slightly higher because the physical crude market is still tight." In its last June monthly report, OPEC predicted oil demand growth to rise by 1.14 million barrels per day in 2019. The majority of oil demand growth is projected to come from India, followed by China.

Muted reaction

Oil prices slipped despite OPEC's decision Monday to extend supply cuts to March 2020 in a bid to support oil prices amid a weakening global economy. Crude rose more than 1% in Monday's session on OPEC's decision but has since pared gains. Markets experienced a more muted reaction given that a supply cut had already been flagged by the likes of Saudi Arabia at last weekend's Group of Twenty (G-20) meeting in Japan, taking out what Sen described as the "surprise element" for the market. Oil prices were still buoyant Tuesday morning, benchmark Brent crude futures trading at $65.22 a barrel and West Texas Intermediate (WTI) at $59.12. Concerns over the demand outlook amid uncertainty over global trade relations, and how those are impacting the international growth outlook, were seen as weighing on sentiment. Nonetheless, Saudi Arabia's Energy Minister struck an optimistic tone on the demand for oil, despite weaker global economic conditions.