United States and China moved closer to a resolution to the 18-month trade war between the world’s two biggest economies that have raised big questions about global demand for crude.
The White House has agreed to suspend some tariffs on Chinese goods and reduce others in return for Beijing’s pledge to hike purchases of U.S. farm products in 2020, sources said on Thursday. But the White House didn’t release any official statement, raising questions about whether the terms had been agreed by both sides
The anticipation of this resolution drove oil price on Friday to a three month high.
Brent futures LCOc1 climbed 47 cents, or 0.7%, to $64.67 a barrel by 0730 GMT, its highest since September 23.
West Texas Intermediate (WTI) crude CLc1 was up 34 cents, or 0.6%, to $59.52 a barrel, the highest since September 16.
Edward Moya, senior market analyst at OANDA said “Risk appetite ran wild after Trump signalled that he made a deal with China and that will only be positive for global demand forecasts for crude”. According to Moya, further progress with the U.S-China trade war, could see global GDP rise by half a percentage point in 2020 and that would do wonders for crude demand forecasts.
A slump in the U.S. dollar .DXY against the backdrop of a strong pound also helped to boost commodity prices, said Margaret Yang, market analyst at CMC Markets.
Mirroring investor optimism, Asian share markets jumped to multi-month highs on Friday after Wall Street surged to record highs on Thursday.
While a trade deal that would end uncertainty could provide a shot in the arm for oil demand in the near term, concerns continue to hover about the demand profile amid ample supplies going forward.
“Lingering doubts about demand will cap the upside on prices,” said ANZ Bank in a note on Friday.
Looking further ahead, an International Energy Agency report on Thursday pointed to future pressure on oil prices, predicting a sharp rise in global inventories despite an agreement by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies to deepen output cuts. That contrasts with OPEC’s own research, which forecasts a small deficit in the market next year due to Saudi Arabia’s supply restraint even before the latest cut agreement takes effect.
Sources: Reuters, Vanguard News.