Oil starts the new year on a high ahead of US-China trade talks

London — Oil prices rose to begin the new year on Thursday buoyed by signs of improving trade relations between the US and China that eased demand concerns and rising tensions in the Middle East.

Brent crude futures rose 25 cents to $66.25 a barrel by 9.58am GMT, while US West Texas Intermediate (WTI) crude was up 13 cents at $61.19 per barrel.

The US military carried out air strikes against the Iran-backed Katib Hezbollah militia group over the weekend. Angry at the air strikes, protesters stormed the US embassy in Baghdad on Wednesday, though they withdrew after the US deployed extra troops.

“We do not see a threat to Iraq’s crude supply at the moment, other than a small wind-down over the first few months of 2020 in line with its Opec cut agreements,” consultancy JBC Energy said.

“Nevertheless, heightened tensions in the region involving Iranian-backed forces may introduce a certain geopolitical risk,” they said.

Oil was also boosted by optimism that trade talks between the world’s two largest economies will support demand.

US President Donald Trump said on Tuesday the US-China Phase 1 trade deal would be signed on January 15 at the White House.

“We may need to see that economic optimism turn into better data before we see more substantial gains,” analysts at Oanda said.

January also marks the scheduled start of deeper output cuts by Opec and its partners, including Russia.

The group agreed to cut output by a further 500,000 barrels per day (bpd) from January 1, on top of their previous cut of 1.2-million bpd.

The cuts come as Russia reported record high 2019 oil and gas condensate production of 11.25-million bpd, beating the previous record of 11.16-million bpd set a year earlier, energy ministry data showed on Thursday.

A fall in US crude inventories last week also supported prices. US crude stocks fell 7.8-million barrels in the week ended December 27, compared with analysts’ expectations for a decrease of 3.2-million barrels, data from the American Petroleum Institute (API) showed on Tuesday.

Official data from the Energy Information Administration (EIA) is due on Friday having been delayed by two days by the New Year holiday.

In 2020, Brent is forecast to average $63.07 a barrel, up from December’s estimate of $62.50, while WTI is forecast to average $57.70 a barrel, up from December’s estimate of $57.30, a Reuters poll showed.

Reuters