US and China trade talks boost oil price

Oil prices extended gains, supported by hopes that talks in Beijing between US and Chinese officials might defuse a trade dispute between the world’s two biggest economies, while Opec-led supply cuts also tightened markets.

The price of Brent crude — the global benchmark — rose by over $1, or 1.75%, to $58.35 a barrel. US benchmark, the West Texas Intermediate crude oil, climbed 95 cents, or almost 2%, to $49.47 a barrel.

US Commerce Secretary Wilbur Ross said earlier this week there was a “very good chance” of reaching a settlement, while China’s foreign ministry said Beijing had the “good faith” to resolve trade friction with the United States.

Some analysts warned, however, that the relationship between the superpowers remained shaky and tensions could flare anew.

“Surely there will be more twists and turns in the saga and increasing US tariffs on Chinese goods after March from 10% to 25% cannot be excluded,” Tamas Varga of PVM Oil Associates said.

“For now, however, optimism prevails,” the analyst said.

There is also concern that a worldwide economic slowdown will dent fuel consumption, leading the hedge fund industry to cut significantly its bullish positions in crude futures.

S&P Global Ratings said it had lowered its average oil price forecasts for 2019 by $10 per barrel to $55 and $50 a barrel for Brent and WTI, respectively.

“Our lower oil price assumptions reflect slowing demand and rising supply globally,” said S&P Global Ratings analyst Danny Huang.

Crude prices so far in 2019 have been buoyed by supply cuts from Opec, including top exporter Saudi Arabia, as well as non-member Russia.

Saudi-based Arab Petroleum Investments, a firm specialising in funding petroleum projects, estimated in a report that oil prices are likely to trade at $60 to $70 a barrel by mid-2019.

But looming over the Opec-led cuts is a surge in US oil supply — now the world’s top producer — driven by a steep rise in onshore shale drilling. As a result, US crude oil production rose by two million barrels per day (bpd) last year to a world record 11.7 million of barrels a day. With drilling activity still high, most analysts expect US oil production to rise further this year.

Consultancy JBC Energy said it was likely that US crude production was “significantly above 12 million bpd” by early January.

Reuters

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