Abu Dhabi: Oil prices can expect a boost after the recently announced US-China phase one trade deal, bringing a reprieve to the trade war that has been waged between the world’s two largest economies, analysts said.
Announced by US President Donald Trump on Friday, the partial trade deal will suspend tariffs that were set to be implemented against China on December 15, with China also agreeing to roll back their own planned tariffs against the US along with increasing their purchase of US agricultural goods.
Oil markets on Friday’s closing reacted positively to the news with Brent trading on $65.22 and West Texas Intermediate (WTI) on $60.07.
“Crude oil continued to grind higher with support being provided by the trade deal news and the Opec+ group’s decision to cut its production ceiling by an additional 500,000 barrels [per] day through to next March (bpd),” said Ole S Hanson, head of commodity strategy, Saxo Bank.
“The additional and voluntary 400,000 bpd cut announced by the Saudi oil minister at last week’s meeting in Vienna was mostly viewed as the Kingdom’s attempt to drive a $2 trillion valuation of Aramco. Supported by strong demand … that level was reached on the second day of trading,” he added, highlighting how the phase one trade deal was adding good news for oil markers following the decision for more production cuts by Opec+.
Hanson said that a surplus of oil, particularly as a result of higher production from non-Opec members would continue to pose a challenge to oil prices.
“Monthly oil market reports from Opec, IEA (International Energy Agency) and EIA (US Energy Information Agency) found a small improvement in the outlook for global oil demand.
“However, the gap between world demand and rise in non-Opec supply remains and it highlights the need for Opec+ to keep production tight, especially during H1 (first half) 2020,” he added.
“WTI crude oil reached $60/barrel as the uptrend from the October low extended further.