Oil rises on trade talk optimism and signs of robust US demand

An oil pumpjack
An oil pumpjack

Oil climbed as the Trump administration signaled optimism a trade deal may be reached with China and an industry report indicated robust US fuel demand.

Futures in New York rose as much as 1.9% on Wednesday. US President Donald Trump believes “there is a good possibility that we can make a deal,” White House economic adviser Larry Kudlow said. Trump is scheduled to meet his Chinese counterpart Xi Jinping on the sidelines of the G-20 summit in Argentina this week. The American Petroleum Institute was said to report a 2.6 million-barrel drop in gasoline inventories last week.

Crude tumbled about 20% this month as America’s surprise sanction waivers for Iranian oil and rising output in the US, Saudi Arabia and Russia raised concern over a supply glut, while the US-China trade tensions clouded the outlook for energy demand. Traders also await another widely-expected meeting in Argentina between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman before OPEC and its allies meet next week to discuss output policy in Vienna.

Kudlow’s comments “spurred optimism US-China trade talks may advance in the right direction before tensions escalate to a point where additional tariffs will be imposed,” Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp., said by phone from Tokyo. At the OPEC+ meeting, “they will probably agree on production cuts, which may be about about 1 million barrels a day.”

West Texas Intermediate for January delivery rose as much as $1 to $52.56 a barrel on the New York Mercantile Exchange and traded at $52.32 at 16:26 in Tokyo. The contract fell 7 cents to $51.56 on Tuesday. The US benchmark’s 14-day Relative Strength Index remains in oversold territory. Total volume traded was 39% above the 100-day average.

Brent for January settlement added 81 cents to $61.02 a barrel on London’s ICE Futures Europe exchange. The contract dropped 27 cents to $60.21 on Tuesday. The global benchmark traded at an $8.71 premium to WTI.

Despite market expectations for a breakthrough in trade talks, Kudlow warned the US is ready to impose more tariffs if the Trump-Xi meeting doesn’t yield progress. Trump will likely push forward with plans to increase tariffs on $200bn of Chinese goods, he said in an interview with the Wall Street Journal published on Monday.

Trump’s renewed criticism of Federal Reserve Chairman Jerome Powell also spurred speculation the US central bank may put on hold its interest-rate increases, Nogami said. The Bloomberg Dollar Spot Index has rallied to near the highest level in 1 1/2 years amid expectations for a hike in US rates. A rise in the greenback diminishes the appeal of dollar-denominated commodities like crude.

While the API report points to declining US gasoline inventories, it also showed crude stockpiles rose 3.45 million barrels last week. If replicated in government data due on Wednesday, it will be a third consecutive weekly drop in gasoline inventories and a 10th weekly gain in crude stockpiles, the longest streak since November 2015.

Other oil-market news: OPEC and its allies will announce production cuts to check a slump in oil prices when they meet next week, defying pressure from President Trump, according to a Bloomberg  survey. Canada’s lingering crude glut isn’t hindering the country’s growing oil output, according to the National Energy Board’s most recent  forecast. After a good run that prompted talk of crude at $100 a barrel, US oil producers are teetering on the edge of another period of stress, according to the researcher behind a new study on the shale industry.

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