Oil prices on Tuesday jumped by the most so far this year after the United States said it would delay imposing a 10% tariff on certain Chinese products, easing concerns over a global trade war that has pummelled the market in recent months. The Chinese products include laptops and cellphones. The tariffs had been scheduled to start next month.
"The US-China trade war has caused energy demand growth to take a big hit. Any glimmer of hope revives the prospects for a more positive demand landscape," said John Kilduff, partner at energy hedge fund Again Capital Management in New York. Brent futures rose $2.73, or 4.7%, to settle at $61.30 a barrel, while US West Texas Intermediate (WTI) crude gained $2.17, or 4.0%, to settle at $57.10.
That was the biggest daily percentage gain for Brent since December when the contract gained 7.9%. Since falling to their lowest levels since January on August 7, Brent has gained 9% and WTI 12%. That bigger gain in WTI over the past four days briefly cut Brent's premium over WTI to its lowest since March 2018.
The Chinese Ministry of Commerce said in a statement on Tuesday that US and Chinese trade officials spoke on the phone and agreed to talk again within two weeks. "The possibility that the United States and China can get the trade talks on track ... is raising hopes that they might actually get some type of deal," said Phil Flynn, analyst at Price Futures Group in Chicago.
"That's why we are seeing this big rebound in prices," Flynn said. Before the US announcement about the tariff delay, Brent futures were still trading about 20% below the 2019 high they hit in April. In addition to the cooling of the US-China trade war, analysts said prices were propped up by expectations US crude inventories declined last week and a belief Saudi Arabia will stick with production cuts.
In the United States, analysts forecasts crude stockpiles fell by 2.8 million barrels last week, according to a Reuters poll. "If we get the drawdown in (US) inventory that most people are looking for, that is going to get the market a lot tighter," said Flynn at Price Futures. The American Petroleum Institute (API), an industry group, was due to release its inventory report at 4:30 pm EDT (2030 GMT) on Tuesday, followed by US government data on Wednesday morning.
Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries (Opec), last week said it planned to keep its crude exports below 7 million barrels per day (bpd) in August and September to help drain global oil inventories. Opec and its allies, known as Opec+, have agreed to cut 1.2 million bpd of production since January 1.
The kingdom's plan to float its national oil company Saudi Aramco in what could be the world's largest initial public offering (IPO) gives it further impetus to boost prices. "Saudi Arabia and its Gulf allies standing firm on their commitment to the Opec+ output-cut agreement has supported prices," said Abhishek Kumar, head of analytics at Interfax Energy in London.
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