UPDATE 1-Oil prices slip as U.S. inventories, virus fears grow

* U.S. crude stockpiles rise sharply, API says

* U.S. tells China to shut Houston consulate

* Trump shifts tone with coronavirus warning

* EIA data on U.S. inventories due at 1430 GMT (Updates prices, adds latest on US-China)

By Bozorgmehr Sharafedin

LONDON, July 22 (Reuters) – Oil prices fell on Wednesday as industry data showed a bigger-than-expected rise in U.S. inventories and as tensions escalated between the United States and China.

Brent crude fell 58 cents, or 1.3%, to $43.74 a barrel by 1058 GMT. U.S. West Texas Intermediate (WTI) crude dropped 66 cents, or 1.6%, to $41.26.

The American Petroleum Institute (API) industry group reported that U.S. crude inventories rose last week by 7.5 million barrels, compared with forecasts for a drawdown of 2.1 million barrels.

The U.S. Energy Information Administration (EIA) releases official oil data later on Wednesday.

“U.S. glut fears have become a permanent fixture of the oil market,” said Stephen Brennock of oil broker PVM. “This will remain the case so long as the U.S. oil demand outlook is being undermined by the country’s failure to contain the COVID pandemic.”

U.S. President Donald Trump said on Tuesday the outbreak would probably worsen before it got better, comments that marked a shift from his previously robust emphasis on reopening the U.S. economy.

Bjornar Tonhaugen, Rystad Energy’s head of oil markets, said Trump’s comments might be welcomed by investors as they were among the most measured by him or his administration so far.

“This could be a positive for oil demand prospects. Instead of an uncontrolled, disruptive second wave of lockdowns, maybe chances have now increased that the United States will eventually get the spread under control,” Tonhaugen said.

However, a fresh dispute between Washington and Beijing put pressure on prices, after the United States told the Chinese consulate in Houston to shut and a source said China was considering shutting the U.S. consulate in Wuhan.

Adding to pressure, there are also signs that Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries, is still not meeting its target under an OPEC-led pact to cut supplies.