Oil prices set for largest annual gains in three years

London — Oil prices steadied on the last trading day of the decade on Tuesday and were on track for a monthly and annual gains, supported by a thaw in the prolonged US-China trade dispute and Middle East unrest.

Brent crude was up 9c at $66.76 a barrel by 9.41am GMT. US West Texas Intermediate (WTI) crude was down 2c at $61.66 per barrel.

The volume of trade remained low as many investors were away for year-end holidays.

Brent has gained about 24% in 2019 and WTI has risen 35%. Both benchmarks are set for their biggest yearly gains in three years, backed by a breakthrough in US-China trade talks and output cuts pledged by oil cartel Opec and its allies (Opec+).

Signs of progress in the talks between Washington and Beijing and the likelihood of signing a trade deal as early as the first full week of 2020 boosted factories’ output and Chinese manufacturing activity expanded for a second straight month.

China’s purchasing managers’ index (PMI), an index that shows economic trends in the manufacturing and service sectors, was unchanged at 50.2 in December from November, but still remained above the 50-point mark that separates growth from contraction.

Also supporting the prices were rising tensions in the Middle East as thousands of protesters and militia fighters gathered outside the US embassy in Baghdad to condemn US air strikes against Iraqi militias. The US ambassador and other staff have been evacuated due to security concerns. The US strikes could pull Iraq further into the heart of a proxy conflict between the US and Iran.

Looking ahead, US crude inventories are expected to fall by about 3.2-million barrels in the week to December 27, potentially its third consecutive weekly decline, a preliminary Reuters poll showed on Monday.

“Oil prices, though largely expected to trade positive, will face headwinds from subdued global growth momentum and robust US shale output levels in the first quarter [of 2020],” said Benjamin Lu, analyst at Phillip Futures.

Prices are likely to remain range-bound in 2020 as swelling supplies, particularly from the US, offset cuts from Opec and weakening worldwide demand, brokers and analysts said.

The US Energy Information Administration (EIA) expects average crude oil prices to be lower in 2020 than in 2019 because of rising inventories. Outside the US, production is expected to continue to grow in Brazil, Norway, and Guyana.

Reuters