Oil prices surge on hopes of successful US-China trade talks

Cornelia Mascio
Gennaio 12, 2019

Oil prices were on track for solid weekly gains today after financial markets were lifted by hopes the USA and China may soon resolve their trade disputes, and as OPEC-led crude output cuts started to tighten supply.

Oil headed for its biggest weekly gain in over two years on hopes that OPEC will manage to shrink a glut and trade tensions between the USA and China will ease.

Futures have advanced more than 9 per cent this week as the Saudi-led producer coalition pledged Thursday to keep markets in balance. Investor sentiment has improved as the Organisation of Petroleum Exporting Countries and its allies including Russian Federation said they will keep the market in balance with cuts that will be implemented from this month. "China trade talks earlier in the week appeared to have run its course". A deal between the nations could boost flagging global growth that underpins oil demand.

"Oil has had a good rally as Saudi Arabia's willingness to move forward with cutting output was clearly delivered to the market", said Hong Sungki, a commodities trader at NH Investment & Securities Company in Seoul. "But the trade negotiations between the US and China still add some uncertainty to global financial and oil markets, possibly leading to corrections in prices in the shorter term". U.S. West Texas Intermediate (WTI) crude futures CLc1 were down 91 cents, or 1.7 percent, at $51.68 a barrel.

Brent for March settlement fell 26 cents to $61.42 a barrel on the ICE Futures Europe Exchange in London.

If the upside momentum continues into the close then WTI and Brent should post almost 10 percent gains for the week. It was the first time this year that WTI has topped $50 a barrel.

Saudi Arabia attempted to assure the market that the production curbs by the OPEC+ coalition will be in place, stating that the world's top oil exporter has already curtailed its output.

OPEC and its major ally Russian Federation began reducing output by 1.2 million barrels per day on January 1.

While recent progress seen in U.S. China's Ministry of Commerce said on Thursday that the talks between the two sides were "extensive, in-depth and detailed" and laid foundation for a resolution.

Meanwhile, dovish commentary by Federal Reserve Chairman Jerome Powell and his deputy Richard Clarida has added to positive investor sentiment.

Adding to support for oil, the value of the USA dollar tumbled after a Federal Reserve official said the central bank isn't locked into a particular direction for interest rates. Off-topic, inappropriate or insulting comments will be removed.

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