Published: Wed, January 09, 2019
Money | By Ralph Mccoy

Oil prices rise over 2% on trade talk optimism

Oil prices rise over 2% on trade talk optimism

Brent for March settlement gained 2.4% to settle at $58.72 on the ICE Futures Europe Exchange in London.

The oil producers' cartel and its allies, including Russian Federation, promised to cut production by 1.2m barrels per day. The U.S. administration on January 7 expressed optimism it can reach a "reasonable" trade deal, and Trump has given Trade Representative Robert Lighthizer until March 1 to negotiate an accord.

The Saudi early production cut last month provided temporary support to oil prices, with both global benchmark Brent crude futures and USA -benchmark, West Texas Intermediate (WTI) futures gaining on Tuesday. with WTI futures up $1.05, or 2.16 percent, to $49.57 a barrel.

"If compliance by OPEC and the allied non-OPEC countries is similarly high as in the agreement two years ago, the oil market is likely to be rebalanced during the first half year", Commerzbank wrote in a note on Monday.

West Texas Intermediate (WTI) for February delivery increased as much as 77 U.S. cents to US$49.29 a barrel on the New York Mercantile Exchange.

Oil has gained almost 12 percent since last Monday in its biggest week-on-week rally in two years.

"Momentum is coming back into the market from very depressed price levels", Petromatrix strategist Olivier Jakob said.

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OPEC, led by Saudi Arabia, alongside other producers led by Russian Federation, agreed past year to rein in supplies starting from January after oil tumbled from above $86 on worries about surging output.

But looming over the OPEC-led cuts is a surge in US oil supply, driven by a steep rise in onshore shale drilling.

Consultancy JBC Energy said it was likely that US crude production was "significantly above 12 million bpd" by early January. Traders are also expecting that the decision of OPEC and some non-OPEC members including Russian Federation to reduce crude output by 1.2 million barrels per day from this month will significantly alter supply - demand imbalance in the market. More upbeat equity markets also offered support.

"The oil market continues to rally as the OPEC and non-OPEC production cuts are taking effect, reducing the oversupply situation that we've been seeing in the market", said Andrew Lipow, president of Lipow Oil Associates in Houston.

Easing US-China trade tensions would underpin oil at current levels.

The escalating trade dispute between Washington and Beijing had hit prices in recent months because of fears that it could dampen global economic growth and result in a slowdown in oil demand.

S&P Global Ratings said it had lowered its average oil price forecasts for 2019 by $10 per barrel to $55 for Brent and $50 per barrel for WTI.

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