Oil prices rise over 2% on trade talk optimism

Crude Oil

USA crude inventories at Cushing, Oklahoma, the delivery point for US crude futures, fell by 565,000 barrels from last Tuesday to Friday, traders said, citing data from market intelligence firm Genscape. However, Brent crude saw the lowest value this week since August 2017.

A potential agreement between China and the United States could help avoiding a slowdown in both China and the global economy, as this has been one of the main drivers of the slump in crude oil prices in the Q4 2018.

Some analysts believe that this round of talks are unlikely to yield any fruit and fear the talks may go down to the wire, which is essentially the March 1 truce deadline agreed upon by U.S. President Trump and China's President Xi Jinping on December 1.

"Very high Saudi and Russian production, in particular, has heightened supply volatility, so whether Opec and Russia maintain production discipline and renew agreements to limit output are key concerns going into the new year", said Steve Wood, Moody's managing director, oil and gas.

The price of Brent crude has increased 7.5 per cent since the beginning of the year following a massive drop in prices in the last three months of 2018. Investor confidence is growing as the Organization of Petroleum Exporting Countries and it allies start their pledged production cuts this month, led by Saudi Arabia.

West Texas Intermediate for February delivery traded up $1.26 to settle at $49.78 on the New York Mercantile Exchange, the highest close since December 17.

International Brent crude futures gained 55 cents to $57.88 per barrel by 0945 GMT. Last Thursday, all three major US stock indexes plunged by 2 percent after a dire revenue warning from Apple heightened fears of a global economic slowdown.

"There's a confluence of factors helping - a big driver is progress in trade talks and hopes that global growth will be supported", said Stephen Innes, head of trading for Asia Pacific at Oanda Corp. The Saudi budget does not breakeven unless Brent crude prices average in the mid-$80s per barrel, vastly higher than today's spot price. The current round of talks are scheduled to continue through Tuesday, with more senior-level discussions likely this month.

Because of record USA crude oil production C-OUT-T-EIA of 11.7 million bpd, American fuel stockpiles are rising, according to weekly data by the Energy Information Administration (EIA). Nationwide inventories are near their lowest level in nearly two months.

Consultancy JBC Energy said it was likely that USA crude oil production was already "significantly above 12 million bpd" by early January.

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