Oil hovers near three-month high on trade optimism, supply cuts

Ritu

By Ritu

Capital Sands

Oil prices trickled a fraction lower on Tuesday but remained near a three-month high as investors kept the faith with hopes that a fully-fledged U.S.-China trade deal is in the pipeline and set to stoke oil demand in the world’s biggest economies.

Brent crude oil futures had slipped by three cents to $65.31 a barrel, while West Texas Intermediate crude was down 4 cents to $60.17 a barrel.

Under a partial trade agreement announced last week, Washington will reduce some tariffs on Chinese imports in exchange for Chinese purchases of agricultural, manufactured and energy products increasing by about $200 billion over the next two years.

The agreement is yet to be signed and several Chinese officials told Reuters the wording of the agreement remained a delicate issue, with care was needed to ensure expressions used in text did not re-escalate tensions and deepen differences.

Lower supply next year due to a planned cut by the Organization of the Petroleum of Exporting Countries (OPEC) and associated producers like Russia – a grouping known as ‘OPEC+’ – and stronger economic growth expected because of the improved trade outlook between United States and China will combine to tighten the oil supply-demand balance next year, analysts from JP Morgan said.

Also supporting prices, a preliminary Reuters poll ahead of reports from the American Petroleum Institute (API) and the Energy Information Administration  showed expectations that U.S. crude oil inventories likely fell last week.

Still, U.S. oil output from seven major shale formations is expected to rise about 29,000 barrels per day in January to a record 9.14 million bpd, the EIA said in a monthly forecast on Monday.

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