Oil prices rise but gains are capped by ample supply

London/Tokyo — Oil prices rose on Thursday after the US and China signed an eagerly awaited phase-one trade deal, giving some relief to markets, but gains were capped as the International Energy Agency (IEA) said it expected oil production to outstrip demand.

Brent was 36c, or 0.6%, higher at $64.36 a barrel by 9.41am GMT, while US crude was up by 22c, or 0.4%, at $58.03 a barrel.

Under the phase-one deal to call a truce in a trade war between the world’s two biggest economies, China committed to buy more than $50bn more of US oil, liquefied natural gas (LNG) and other energy products over two years.

Trade sources and analysts said China could struggle to meet the target and gains in oil are likely to be limited ahead of more detail on how the commitments will be achieved.

“The interim deal has done the trick for the time being, but we can be sure that as talks about phase two get underway we shall see more twist and turns,” said oil broker PVM’s Tamas Varga. “To borrow the words from Ferdinand Foch, the supreme allied commander during World War 1: ‘This is not peace. It is an armistice for a few months’.”

Oil prices are returning to range trading, analysts said, as the threat of conflict between Iran and the US receded further after they traded missile and drone attacks earlier this month.

In a reassuring note to the market, the IEA said surging oil production from non-Opec countries along with abundant global stocks will help the market weather political shocks such as the US-Iran stand-off.

The IEA also said it expected production to outstrip demand for crude from oil cartel Opec, even if members comply fully with a pact with Russia and other non-Opec allies to curb output.

UBS said in a note that “provided Middle East tensions do not intensify and cause production disruptions, Brent should decline towards the bottom of a $60–$65 a barrel trading range in the first half of 2020 before recovering to the top of it in the second half of the year”.

Also supporting prices was US official data that showed a much bigger-than-expected drop in crude oil inventories. Oil inventories fell by 2.5-million barrels, compared with analyst expectations of a drop of 500,000 barrels, according to data from the Energy Information Administration (EIA).


Source: businesslive.co.za