Oil prices rise over two percent on trade talk optimism

Gladys Abbott
January 9, 2019

Brent for March settlement gained 8 cents to $57.41 a barrel on the ICE Futures Europe Exchange in London.

Global equity markets are entering the New Year in the doldrums and are spooking traders and investors alike, closely mirroring the decline in manufacturing growth in both the US and China amid ongoing trade tensions.

The Saudi early production cut last month provided temporary support to oil prices, with both global benchmark Brent crude futures and US -benchmark, West Texas Intermediate (WTI) futures gaining on Tuesday. with WTI futures up $1.05, or 2.16 percent, to $49.57 a barrel.

West Texas Intermediate (WTI) for February delivery increased as much as 77 USA cents to US$49.29 a barrel on the New York Mercantile Exchange.

Meanwhile, the vice ministerial level talks between US and Chinese officials are scheduled to commence later in the day at Beijing.

Futures in NY increased as much as 1.9% following six days of gains, the longest streak of increases since July 2017.

"Spot prices will continue to recover with Brent backwardation set to return by summer as inventories eventually revert to 5-year average levels".

Futures are rebounding as the Organisation of the Petroleum Exporting Countries (Opec) and its allies start their pledged production cuts this month, led by Saudi Arabia, and after the US Federal Reserve signalled a hold in interest rate hikes that had spurred risk aversion and volatility across global financial markets.

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Oil prices rose by 2 percent on Monday, extending a rally from 18-month lows hit in December with support from OPEC production cuts and steadying equity markets.

"When stock markets are strong oil usually follows suit", PVM Oil Associates strategist Tamas Varga said.

Continuing to underpin the markets is optimism that the on-going OPEC-led supply cuts will trim the excess global supply and stabilize prices.

Consultancy JBC Energy said it was likely that United States crude oil production was already "significantly above 12 million bpd" by early January.

The America-China trade talks are showing signs of progress.

Crude oil prices are up sharply Monday morning, extending gains to a sixth successive session, amid easing worries about global growth and energy demand after reports indicated a possible meeting of U.S. President Donald Trump and China's vice president Wang Qishan later this month.

As a result, US crude oil production rose by 2 million barrels per day (bpd) a year ago to a world record 11.7 million bpd. Societe Generale cut its 2019 oil price forecast for Brent by $9 to $64 a barrel and reduced its forecast for United States light crude by $9 to $57 a barrel.

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