Oil prices surf US-China trade thaw to three-month highs

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Reuters
KEY POINTS
  • Brent crude futures edged up 8 cents to $66.25 a barrel by 0645 GMT.
  • U.S. West Texas Intermediate (WTI) crude gained 4 cents to $60.97.
GP: Iran Oil Tanker 190121
The oil tanker ‘Devon’ prepares to transfer crude oil from Kharg Island oil terminal to India in the Persian Gulf, Iran, on March 23, 2018.
Ali Mohammadi | Bloomberg | Getty Images

Oil prices remained atop three-month peaks on Thursday, extending a robust streak that began a week ago, as thawing trade relations between the United States and China supported global markets.

Brent crude futures edged up 8 cents to $66.25 a barrel by 0645 GMT, while U.S. West Texas Intermediate (WTI) crude gained 4 cents to $60.97.

Trading volume was thin, with not even news of President Donald Trump’s impeachment by the U.S. House of Representatives stirring the oil market.

“We’re near the top of trading ranges for both Brent and WTI so it’s interesting to see them holding here,” said Michael McCarthy, chief market analyst at CMC Markets in Sydney.

While there is a clear uptrend in place on the daily technical price chart for WTI to potentially move towards $61.50 a barrel, there are also near-term risks — touching that price level may encourage traders to sell, McCarthy said.

″(Trading) volumes are terrible. A lot of people have given up for the year with no scheduled events to push oil markets around,” he said. The trend leaves oil prices set to rise for a third consecutive week, surfing momentum from announcements this month about deeper output cuts by major producers as well as the ‘Phase One’ deal between the United States and China to resolve their long-running trade war.

The deal between the world’s two largest economies has improved the global economic outlook, lifted the prospect for higher energy demand next year and underpinned oil prices.

In a further sign of thawing relations, China’s finance ministry on Thursday published a new list of six U.S. products that will be exempt from tariffs starting Dec. 26.

Just the week before, the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers such as Russia agreed to deepen production cuts by a further 500,000 barrels per day (bpd) from Jan. 1 on top of previous reductions of 1.2 million bpd.

According to weekly data released by the Energy Information Administration on Wednesday, U.S. crude inventories dropped 1.1 million barrels in the week to Dec. 13, while gasoline and distillates stockpiles rose.

Oil prices gain on lower U.S. crude inventories, Libyan disruption

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  • Oil prices recovered some day-earlier losses in Asia on Wednesday.
  • Prices were supported by a drop in U.S. commercial crude inventories reported by the API.
  • Looming larger over markets is a June 22 meeting in Vienna of OPEC and non-OPEC producers.

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices recovered some day-earlier losses in Asia on Wednesday, supported by a drop in U.S. commercial crude inventories and the loss of storage capacity in oil producer Libya.

U.S. crude inventories fell by 3 million barrels to 430.6 million barrels in the week to June 15, according to American Petroleum Institute (API) in a weekly report on Tuesday.

Brent crude futures rose 18 cents, or 0.2 percent, to $75.26 per barrel at 0351 GMT, compared with their last close on Tuesday.

U.S. West Texas Intermediate (WTI) crude futures gained 20 cents, or 0.3 percent, to $65.27.

Traders said a drop in Libyan supplies due to the collapse of an estimated 400,000-barrel storage tank also helped push up prices.

Looming larger over markets, however, is a June 22 meeting in Vienna of the Organization of the Petroleum Exporting Countries (OPEC) with some other producers, including Russia, to discuss supply.

De-facto OPEC leader and top crude exporter Saudi Arabia, as well as Russia, which is not a member of the cartel but is the world’s biggest oil producer, are pushing to loosen supply controls introduced in 2017 to prop up prices.

Other OPEC-members, including Iran, are against such a move, fearing a sharp slump in prices.

“Saudi Arabia and Russia continued to push for a relaxation in production constraints, going against many other members’ wishes,” ANZ bank said on Wednesday.

“Iran rejected a potential compromise, saying it won’t support even a small increase in oil production. This puts Saudi Arabia in a tough position, as unanimity is needed for any accord to be reached,” it added.

Oil and energy under pressure amid escalating trade tensions

Oil and energy under pressure amid escalating trade tensions  

Jack Allardyce, oil-and-gas research analyst at Cantor Fitzgerald Europe, said he had the “expectation that supply quotas will be increased, but probably more in line with the smaller range being quoted (300,000-600,000 barrels per day) given the lack of consensus amongst OPEC members.”

Allardyce said “we could see this knocking $5 per barrel off Brent and perhaps squeezing the WTI discount a little.”

Markets are also anxiously watching trade tensions between the United States and China, in which both sides have threatened to impose stiff duties on each other’s exports, including U.S. crude oil.

A 25 percent tariff on U.S. crude oil imports, as threatened by China in retaliation for duties Washington has announced but not yet implemented against Chinese products, would make American crude uncompetitive in China versus other supplies.

This would almost certainly lead to a sharp drop-off in Chinese purchases of U.S. crude, which have boomed in the last two years to a business now worth around $1 billion per month.