Oil price hovers near three-month highs on trade war deal hopes

Singapore — Oil prices trickled a fraction lower on Tuesday but remained near a three-month high as investors kept the faith with hopes that a fully fledged US-China trade deal is in the pipeline, set to stoke oil demand in the world’s biggest economies.

Brent crude oil futures had slipped by 2c to $65.32 a barrel by 4.20am GMT, while West Texas Intermediate crude was down 4c to $60.17 a barrel.

Under a partial trade agreement announced last week, Washington will reduce some tariffs on Chinese imports in exchange for Chinese purchases of agricultural, manufactured and energy products increasing by about $200bn over the next two years.

“Oil prices are struggling to extend their gains as investors await further details regarding the US-China ‘phase one’ trade deal,” said Edward Moya, senior market analyst at Oanda. “Oil should be much higher, but the US-China trade war is far from over.”

The ‘phase one’ trade deal has been “absolutely completed”, Larry Kudlow, a top White House adviser said on Monday, adding that US exports to China will double under the agreement.

The agreement is yet to be signed and several Chinese officials said the wording of the agreement remained a delicate issue, with care needed to ensure expressions used in text did not re-escalate tensions and deepen differences.

JPMorgan and Goldman Sachs have revised their oil price forecasts for the next year upwards, with an Opec-led agreement to curb output further dovetailing with the improving trade outlook between the US and China.

Lower supply next year due to a planned cut by the Organisation of the Petroleum of Exporting Countries (Opec) and associated producers like Russia — a grouping known as Opec+ — and stronger economic growth expected because of the improved trade outlook between the US and China will combine to tighten the oil supply-demand balance next year, analysts from JPMorgan said.

Oil demand could see further improvements as US President Donald Trump “tries to … ensure the US growth remains robust before voters turn to the polls in November,” said Oanda’s Moya.

Also supporting prices, a preliminary Reuters poll ahead of reports from the American Petroleum Institute (API) and the Energy Information Administration (EIA) showed expectations that US crude oil inventories were likely to have fallen last week.

Still, US oil output from seven shale formations is expected to rise about 29,000 barrels per day in January to a record 9.14-million barrels per day, the EIA said in a monthly forecast on Monday.

Reuters