Oil prices move higher due to the improving U.S.-China trade picture

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January 15, 2019 12:58pm NYSE:USO

oil prices

From Myra P. Saefong: Oil futures climbed higher Tuesday, recouping some of the losses suffered over back-to-back sessions as global trade relationships and other energy demand signals, especially around China and the U.S., remain a factor for markets.

Just a day earlier, oil fell amid further signs of economic weakness in China. But reports Tuesday, suggesting that China was taking greater steps to shore up flagging growth, lifted expectations that strong demand for oil from the world’s second-largest economy could be sustained.

The People’s Bank of China will increase efforts to spur their economy by improving credit availability for smaller companies, cutting taxes and ramping up infrastructure investments, Beijing officials said Tuesday. Trade data earlier this week were poorer-than expected, underlining worries that the country’s economy was locked in a downturn that could weigh on global expansion amid a protracted tariff spat between China and the U.S.

“Essentially we have gone from pricing a recession back to a more moderate outlook within the span of just six weeks,” according to analysts at consulting firm JBC Energy, writing in a research note. “Recent optimism, among other aspects, has probably been built on the perceived improvement in U.S.-Sino relations, as well as China’s efforts to stimulate its economy,” they said.

Against this backdrop, West Texas Intermediate crude for February deliveryCLG9, +2.69%  rose $1.46, or 2.9%, to $51.97 a barrel on the New York Mercantile Exchange. Prices had closed up for nine consecutive sessions through last Thursday, to their highest since early December, before mild drops on Friday and Monday.

March Brent crude LCOH9, +2.12% rose $1.46, or 2.5%, to $60.45 a barrel on ICE Futures Europe.

Crude prices have risen roughly 20% from annual lows reached at the end of 2018, on signs a global oversupply is being brought into balance, in part because of a production pledge by Organization of the Petroleum Exporting Countries-plus members. December’s low was made on back of a 40% price plunge during the fourth quarter of last year, from four-year highs reached as recently as the start of October.

“An improvement in overall risk appetite” has taken further pressure off oil prices, Craig Erlam, senior market analyst at Oanda, said in a note Tuesday. U.S. benchmark stock indexes headed higher Tuesday.

“The output cut agreed between OPEC+ is expected to support prices in longer term,” he said. So “over the coming weeks and months, I expect downside in oil will be limited unless we see a surprising lack of compliance among participating producers, which was not the case previously.”

Weekly U.S. petroleum supply data from the American Petroleum Institute will be released late Tuesday, followed by official data from the Energy Information Administration Wednesday.

Analysts polled by S&P Global Platts expect the EIA to report a fall of 250,000 barrels in crude stockpiles for the week ended Jan. 11. Gasoline supplies likely added 2.6 million barrels and distillate inventories were expect to have climbed by 900,000 barrels, the survey showed.

Among monthly oil reports, the EIA on Tuesday releases its latest short-term energy outlook. And, OPEC on Thursday is expected to release its monthly oil market report, followed by that of the International Energy Agency on Friday.

Back on Nymex, February gasoline RBG9, +3.02%  was up 2.6% to $1.40 a gallon, while February heating oil HOG9, +0.55%  rose 0.8% to $1.867 a gallon.

Meanwhile, February natural gas NGG19, -1.92%  traded at $3.474 per million British thermal units, down 3.3%. Monday’s gain was nearly 16%, the biggest single-session percentage climb since Nov. 14, according to Dow Jones Market Data. The level marked the highest settlement for a front-month contract since Dec. 27 as colder weather has boosted demand for the heating fuel.

The United States Oil Fund LP (USO) was trading at $10.95 per share on Tuesday afternoon, up $0.26 (+2.43%). Year-to-date, USO has declined -8.83%, versus a -2.09% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 108 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of MarketWatch.

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