Oil Prices Gain 5 percent on US-China Trade Truce

Oil prices rose more than 5 percent on Monday after the US and China established a 90-day truce in their trade war, just days before the meeting by the Organization of the Petroleum Exporting Countries (OPEC) that is expected to result in an output cut.

International benchmark Brent crude oil futures for February delivery gained 3.8 percent to $61.73 per barrel, after advancing 5.3 percent to a high of $62.60 earlier in the session.

January contract US West Texas Intermediate (WTI) crude futures added 5.7 percent to mark a high of $53.85. before easing 4.3 percent to $53.14 per barrel.

Providing further strength to prices was Canadian province Alberta’s plans to push producers to reduce production by 8.7 percent to 325,000 barrels per day (bpd), so as to address a pipeline bottleneck that has left a buildup in storage. A large portion of Alberta’s crude is exported to the US.

Stephen Innes, head of trading for Asia/Pacific at futures brokerage in Singapore described Alberta’s decision to be an unprecedented step to ease a crisis in the Canadian energy industry.

Trump and Xi Agree to 90-day Truce

US President Donald Trump and Chinese President Xi Jinping agreed during a dinner in Argentina of the Group of 20 (G20) leading economies to temporarily put their bilateral trade disagreement aside, striking a deal to hold off on imposing additional tariffs on each other’s products for at least 90 days.

The long-drawn-out trade war between the world’s two largest economies has weighed heavily on global trade, creating fear of an economic slowdown.

In a White House statement of the meeting at the G-20 summit, the two presidents talked about a range of matters including the trade conflict that has left over $200 billion worth of goods in an uncertain situation.

President Trump has agreed that on January 1, he will leave the tariffs on $200 billion worth of product at the 10 percent rate, and not raise it to 25 percent at this time, the statement read. The US and China will continue talks on lingering disputes on technology transfer, intellectual property and agriculture.

The statement added that both parties agreed that they will endeavor to have this transaction completed within the next 90 days, although it warned to raise tariffs to 25 percent from the current 10 percent if the two countries failed to reach an agreement by the end of the period.

Meanwhile, China will acquire a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the US to reduce the trade imbalance between the countries, the White House said.

Crude oil has not been included in the list of hundreds of goods each party has levied with import duties, but traders said the positive sentiment of the truce was also supporting crude markets.

The deal to keep negotiating for 90 days during which tariffs are paused is an upside surprise, according to a US bank, although it added that trade talks would be bumpy. Overall, the bank saw a slight upside in their 2019 outlook due to the renewed talks.

OPEC Meeting in Focus

For now, oil traders will focus on the meeting by the OPEC on December 6. The producer group, along with non-OPEC Russia, is expected to declare cuts in production to curb an output overhang that has weakened prices by around a third since October.

Analysts forecast a cut of 1 million to 1.4 million bpd against October levels, which were the highest by the OPEC since December 2016.

Qatar announced on Monday that it would depart from the producer group in January. The Middle Eastern country produces only about 600,000 bpd, while it is the world’s biggest exporter of liquefied natural gas. Qatar has also been at odds with its larger neighbor and de facto leader Saudi Arabia.

Outside OPEC, data from the Energy Ministry showed Russian oil production fell at 11.37 million bpd last month, compared with its post-Soviet record of 11.41 million bpd registered in October.

US oil producers, meanwhile, continued their mass production, as crude output grew to a record level of more than 11.5 million bpd. Most analysts expect US oil production to go higher in 2019 as drilling activity remains high.

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