Oil rallies on trade deal after US stockpiles spur demand fear

Oil rebounded after the US and China inked the first phase of their trade deal, recouping losses driven by data showing American petroleum supplies rising to a four-month high.
Photo: Ints Kalnins/Reuters/Ritzau Scanpix
Photo: Ints Kalnins/Reuters/Ritzau Scanpix

Futures climbed as much as 0.9 percent in New York after China agreed to buy almost USD 95 billion of additional American commodities over two years including crude and refined products. That came after an Energy Information Administration report showed a near 15-million-barrel build in American petroleum inventories, highlighting weak demand and weighing on prices Wednesday.

China pledged USD 52.4 billion of further purchases of American energy over 2020 and 2021, although it didn’t say whether it would lift a retaliatory 5 percent  tariff on US crude. The buying commitment as well as the possibility that the improved relationship between the world’s two largest economies will spur economic growth is a fillip for oil prices that have fallen around 8 percent since the US and Iran stepped back from the brink of war last week.

“Challenges lie ahead for China as part of its commitment to massively increase purchases of US crude,” said Jeffrey Halley, a senior market analyst at Oanda in Singapore. “It will take time for China to ramp up these purchases and will thus have a limited supportive affect on US crude prices.”

West Texas Intermediate crude for February delivery rose USD 0.35, or 0.6 percent, to USD 58.16 a barrel on the New York Mercantile Exchange as of 7:29 a.m. in London. The contract fell 0.7 percent to close at USD 57.81 on Wednesday.

Brent for March settlement climbed 0.6 percent to USD 64.35 a barrel on the ICE Futures Europe exchange after closing down 0.8 percent on Wednesday. The global benchmark crude traded at a USD 6.14 premium to WTI for the same month.

Wider raw materials markets shrugged at China’s USD 95 billion trade pledge. The Bloomberg Commodity Index added 0.1 percent after closing down 0.4 percent on Wednesday. Most agricultural commodities declined.

China would need to turbocharge US oil imports to meet its buying pledge. The Asian nation’s purchases of American crude peaked at 14.7 million barrels in January 2018, official data show, but would need to rise to an average of 21.9 million barrels a month this year and 36.2 million barrels in 2021. Those estimates are based on Bloomberg calculations that assume an oil price of around USD 65 a barrel and that the proportion crude purchases would make up of the total energy buying would be similar to pre-trade war levels.

While US petroleum stockpiles rose, crude inventories fell by 2.5 million barrels last week, the EIA data show. Four-week average demand for total oil products was down by 1 percent year-on-year, with diesel dropping by almost 7 percent. American crude production rose to a high of 13 million barrels a day.

Other oil-market news
  • OPEC’s latest forecasts suggested a weaker outlook for global oil markets this year as surging supplies from competitors from Norway to Guyana threaten the group’s efforts to aid crude prices.
  • Russia and the UAE said that OPEC and its allies will proceed with a scheduled meeting in March to decide whether to continue production cuts. Tass had reported that it might be canceled.
  • A month after the world’s largest initial public offering, Saudi Aramco’s investment banks aren’t exactly bullish, with most recommending investors avoid the stock as they kicked off research coverage.
  • Crude futures fell 0.6 percent to CNY 453 a barrel on the Shanghai International Energy Exchange, the sixth straight day of declines.

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