Brent above $60 as trade talks buoy longest rally since 2017

By Heesu Lee and Grant Smith on 1/9/2019

SEOUL and LONDON (Bloomberg) -- Brent oil extended its longest rally in a year and a half, rebounding above $60/bbl, on hopes of a resolution in the U.S.-China trade dispute. 

Futures in London -- which last traded over $60 in December -- are up for an eighth session, recovering from a 35% collapse in the last quarter of 2018. U.S. President Donald Trump is said to be eager to strike a deal with China soon to perk up financial markets that have slumped on concerns over a trade war between the nations. Meanwhile, an industry report Tuesday was said to show American crude inventories declined.

Fears of a slowdown in oil demand are receding with an easing of the long-running trade tensions, which helped drag crude prices into a bear market after they hit a four-year high in October. Confidence is also strengthening that OPEC and its allies including Russia will curb output enough to counter booming U.S. supplies and avoid an oversupply.

“There is further upside to come in prices, as we see more evidence coming through that members of OPEC+ are complying with their new production cut,” said Warren Patterson, senior commodities strategist at ING. “We see the market largely balanced over the first half of 2019.”

Brent for March settlement rose as much as $1.29, or 2.2%, to $ 60.01/bbl and traded at $59.80 on the ICE Futures Europe Exchange in London. The global benchmark crude was at a premium of $8.67/bbl to West Texas Intermediate for the same month.

WTI for February delivery climbed $1.01 to $50.79 on the New York Mercantile Exchange, the first time it’s back above $50 since Dec. 17.

U.S.-China trade negotiations in Beijing have concluded after being extended by a day, showing both the sides are serious, according to a Chinese foreign ministry spokesman. The talks were originally scheduled for two days. Trump had earlier expressed optimism in a tweet, exclaiming “Talks with China are going very well!”

“Overall investor sentiment on risk assets is improving as the ongoing talks between the U.S. and China ease uncertainties in the market,” Ahn Yea Ha, a commodities analyst at Kiwoom Securities, said from Seoul. “On the other hand, OPEC is signaling that it’s determined to clear a supply glut, which is also supporting crude prices.”

Meanwhile, the American Petroleum Institute was said to show crude stockpiles fell 6.13 MMbbl last week. Still, the data also signaled substantial increases in American gasoline and diesel inventories, a bearish signal for demand. A government report on Wednesday is forecast to show crude inventories dropped 2.7 MMbbl, though the hoard at the nation’s key storage hub may have increased.

Oil Market News

Morgan Stanley lowered its 2019 Brent crude forecast to $61 from $69/bbl, anticipating a price recovery that will be tempered by substantial volumes of crude already in transit.  Canadian heavy crude rose for a second day as one of Alberta’s largest oil sands producers said their mandatory February oil production curtailment will be similar to January’s. Mexico’s opposition is accusing the government of addressing the issue of fuel theft irresponsibly as supply fears spread to the nation’s capital. Car sales in China fell 6% to 22.7 million units last year, the first annual slump in at least two decades, the China Passenger Car Association said Wednesday.

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