Oil Climbs for Seventh Day as Trade Talks Fuel Demand Optimism

Irving Hamilton
January 9, 2019

U.S. West Texas Intermediate (WTI) crude CLc1 futures rose $1.56 to $49.52 a barrel, a 3.3 percent gain. Oil futures have gained more than 7 percent since last Monday.

Brent crude futures were up 1.3 percent at $57.77 per barrel, as of 0512 GMT, while WTI prices were at $48.72 per barrel, up 1.6 percent.

Beyond politics, oil markets are being supported by supply cuts started late past year by a group of producers around the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) as well as non-OPEC member Russian Federation.

OPEC oil supply fell in December by 460,000 barrels per day (bpd) to 32.68 million bpd, a Reuters survey found last week, led by cuts from top exporter Saudi Arabia.

The aim of the production cut is to rein in a surge in global supply, driven mostly by the United States, where production grew by almost a fifth to over 11 million bpd in 2018.

Oil closed at a three-week high as US negotiators touted progress in trade talks with China and investors gained faith that OPEC will shrink output.

Oil Graph

Record high crude oil production C-OUT-T-EIA has pushed up US inventories.

The previous day's gains for oil prices, however, were capped as Goldman Sachs cut its price forecast on worries over energy demand and the potential for a supply surplus.

Supporting Ritterbusch's observations was news from Genscape that USA crude inventories at Cushing, Oklahoma fell by 565,000 barrels from last Tuesday to Friday. A resolution has widely been viewed as potentially supportive to crude prices because tariff spats have helped to hamstring expansion in the world's second-largest economy China, also one of the biggest importers of crude. "When stock markets are strong oil usually follows suit", PVM Oil Associates strategist Tamas Varga said.

Traders hoping for a fast end to the trade dispute were encouraged late Monday by comments from U.S. Commerce Secretary Wilbur Ross who said that Beijing and Washington could read a trade deal that "we can live with".

“The crude oil rally has been fueled by [the Organization of the Petroleum Exporting Countries] supply cuts that were planned to take 1.2 million [barrels per day] off the global market, ” said Robert Yawger, director of energy at Mizuho Securities USA LLC, in a Tuesday research note.

"We expect that the oil market will balance at a lower marginal cost in 2019 given: higher inventory levels to start the year, the persistent beat in 2018 shale production growth amidst little observed cost inflation, weaker than previously expected demand growth expectations (even at our above consensus forecasts) and increased low-cost production capacity", analysts including Damien Courvalin and Jeffrey Currie said.

Trump stays bullish on U.S.-China trade talks
As with previous operations, the Chinese Ministry of Foreign Affairs condemned the US operation. But economists say that is too little time to resolve issues that have disrupted U.S.

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