Oil prices hit three-month highs on US-China trade deal hopes

London — Oil prices rose to three-month highs on Monday, underpinned by optimism over an expected China-US trade deal and upbeat industrial data, while traders kept a close watch on the Middle East following US air strikes in Iraq and Syria.

Brent crude futures were up 63c, or nearly 1%, at $68.79 a barrel. The international benchmark has risen about 27% in 2019.

West Texas Intermediate (WTI) crude futures rose 34c, or 0.55%, to $62.06 a barrel by 1.20pm GMT. The US benchmark is up about 36% so far this year.

“Oil prices continue to remain supported near frothy levels as tensions in the Middle East could see key disruptions in the region, shrinking US stockpiles alleviate oversupply concerns and the US and Chinese look to wrap up the phase-one trade deal,” said Edward Moya, senior market analyst at Oanda.

The Middle East is on edge after the US carried out air strikes on Sunday against the Kata’ib Hezbollah militia group, while protesters in Iraq on Saturday briefly forced the closure of its southern Nassiriya oilfield.

Also, Libyan state oil firm NOC said it is considering the closure of its western Zawiya port and evacuating staff from the refinery due to clashes nearby.

Oil prices were also supported by declining US crude stocks, which fell by 5.5-million barrels in the week to December 20, far exceeding a 1.7-million barrel drop forecast in a Reuters poll.

In China, factory activity likely expanded again in December on stronger external demand and an infrastructure push at home, although the pace of growth is set to ease as markets await more certainty on a US-China trade truce, a Reuters poll showed.

China’s commerce ministry said it is in close touch with the US on the signing of a long-awaited trade deal.

On December 13, the two countries announced a phase-one agreement that reduces some US tariffs in exchange for what US officials said would be a big jump in Chinese purchases of American farm products and other goods.

Some analysts, however, cited abundant global crude stocks as a major obstacle in 2020 to efforts to rein in output by oil cartel Opec and its allies such as Russia (Opec+).

“Even as Opec and its non-Opec partners endeavour to make additional supply cuts in the first quarter of 2020, we are not convinced this will be sufficient to avert large global inventory,” said Harry Tchilinguirian, global oil strategist at BNP Paribas.

“We remain of the opinion that oil fundamentals continue to present downside risk.” 

Reuters