Oil rises one per cent on US, China trade talk optimism

Marco Green
January 11, 2019

"In addition, the oil market will be monitoring trade talks, which seem to progress slowly". Saudi Energy Minister Khalid Al-Falih expressed confidence production curbs by the OPEC+ coalition will balance the market. "But the trade negotiations between the US and China still add some uncertainty to global financial and oil markets, possibly leading to corrections in prices in the shorter term".

Oil could retrace 50% of the October-December 2018 slump.

Oil prices have also been receiving support from supply cuts started at the end of 2018 by a group of producers around the Organization of the Petroleum Exporting Countries (OPEC) as well as non-OPEC member Russian Federation. As producers say they won't let oil stockpiles exceed normal levels, fears of a slowdown in demand is abating as trade tensions ease between the world's top-two economies.

"Crude oil prices continued to march higher, with investors becoming increasingly confident that the OPEC cuts would tighten the market", ANZ bank said.

There's hope. and then there is reality which saw a whopping 10.6 million barrel surge in distillates and over 8 million barrels of gasoline added this week, numbers which were generally ignored by the market, which instead has been focusing on the recent plunge in the dollar, the result of a far more dovish Fed, which has helped support oil prices as the dollar decline made commodities priced in the USA currency more affordable.

Meanwhile, U.S. bank Morgan Stanley cut its 2019 oil price forecasts by more than 10 percent on Wednesday, pointing to "weakening economic growth expectations" and rising oil supply from especially from the United States as reasons for their lower price forecast.

International Brent crude futures were up 42 cents, or 0.7 percent, at $59.14 per barrel. It's also jumped more than 20 percent since December 24.

Brent and the world's other key contract, WTI, slumped late a year ago, hitting 18-month low points at $49.93 and $42.36 per barrel respectively.

The main source of new supply is the United States, where crude oil production remained at a record 11.7 million barrels per day (bpd) in the week ending January 4, the Energy Information Administration (EIA) said on Wednesday. The kingdom has already cut its production to 10.2 million barrels a day and expects to export 7.2 million this month and 7.1 million in February, he said on Wednesday.

"Balancing the market would require OPEC discipline to continue well into 2020", Morgan Stanley said.

Vandana Hari of consultancy Vanda Insights in Singapore said in a note that oil prices dropped "as optimism fueled by the U.S".

China's Ministry of Commerce said Thursday that the talks between the two sides were "extensive, in-depth and detailed" and laid the foundation for a resolution. The U.S. said it wants any deal to include "ongoing verification and effective enforcement".

The growing optimism allowed traders to overlook a report of a steep inventory jump for US gasoline and diesel. Off-topic, inappropriate or insulting comments will be removed.

Other reports by Click Lancashire

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