Optimism on a US-China trade deal to boost oil prices

Abu Dhabi: A breakthrough in US-China trade negotiations will provide oil prices with a boost or at least some stability, analysts say.

After more than a year of deadlock talks between the world’s two largest economies – which has led to tit-for-tat tariffs being imposed by both nations on products worth hundreds of billions of dollars – US president Donald Trump on Friday said that a phase one deal on trade had been reached with China after the visit of Chinese vice premier Liu He to Washington.

The news brought a positive reaction from oil markets with Brent closing on $60.51 (Dh220) and West Texas Intermediate (WTI) on $54.70.

“Oil markets managed to snap a few weeks of losses as risk appetite returned last week. The outlines of a US-China trade deal propelled oil prices higher, helping Brent futures close up 3.7 per cent… and WTI up 3.6 per cent,” said Edward Bell, commodity analyst, Global Markets and Treasury, Emirates NBD.

“The outlook for 2020 remains clouded by the outcome of US-China trade talks, central bank action, trade growth — among other factors — but it should be plainly apparent to markets that no major agency is revising their demand forecasts higher,” he added, highlighting how oil markets were still facing pressure.

Ole S. Hanson, head of Commodity Strategy, Saxo Bank, said oil prices were likely to range between $55-$60 in the near future based on US-China trade talks along with continued geopolitical tensions in the Middle East — which on Friday saw Iran claiming that one of its oil tankers came under attack on the Red Sea.

“The geo-political risk premium following the September attack in Saudi Arabia has been removed but events this past week shows why it could suddenly re-emerge. So, while the pendulum continues to swing between demand and supply worries, we expect that WTI and Brent over the coming weeks will stay range bound around $55/b and $60/b respectively.

“Brent crude oil returned to $60/bpd after receiving a fresh geo-political boost. This after Turkish forces entered northern Syria and after an Iranian tanker was struck by missiles… the impact of this ongoing uncertainty highlighted the upside price risks at a time when the market is focused on the negative price impact of slowing demand growth,” he added.

Markets rally

Friday’s news of a US-China trade deal also saw global markets reacting positively, with that sentiment expected to carry over during the week. In the US, the Dow Jones was up by more than 300 points on Friday, with Nasdaq and S&P500 both closing by more than one per cent.

In Asia, stock markets across the board also saw a rise with the Nikkei closing over one per cent higher, and in China the Shanghai Stock Exchange was up 0.88 per cent.

Europe’s markets also saw rallies with news of a potential Brexit deal being made between the UK and the EU. The Europe Stoxx 600 was up by more than 2 per cent on Friday.