Oil rose to its highest level in nearly three months after US President Donald Trump signed a partial trade deal with China, and expectations for global demand rose after OPEC+ agreed to deepen production cuts.
The futures contracts on the New York Stock Exchange added 0.7% on Friday after the rise. The agreement set the first phase of the new US tariffs that were to be introduced on December 15, and includes a promise from China to buy more American agricultural commodities, according to people familiar with it. They added that the conditions had been agreed, but the legal text had not yet been finalized.
Crude oil is preparing for minimal gains this week due to the positive sentiment about the trade deal, after rising more than 7% in the previous week as OPEC and its allies agreed to cut production deeper than expected. It remains to be seen how far the agreement between the United States of America and China will remove current tariffs that will be critical to reviving oil demand.
“While the current trade deal will most probably limit demand devastation, it might not be enough to counter an oversupplied market said Stephen Innes, head of key strategies for the Asian market. For this reason, we may not witness a massive rebound in oil prices now, commensurate with the risks to the environment.
West Texas Intermediate crude futures for January delivery rose 31 cents, or 0.5%, to $59.49 a barrel on the New York Mercantile Exchange. The contract that was traded rose by 1.6% on Thursday, by 0.5% so far this week. Brent added to the February settlement of 0.7% to $64.63 a barrel on the London-based European Futures Exchange. Global crude oil was trading at $5.25 for WTI for the same month.
Asian stocks and agricultural commodities such as soybeans and corn increased by more than 1% on Friday after news of the completion of the partial trade deal. Discussions are now focused on retracting the existing tariffs that have accumulated over the past 20 months of conflict by as much as a half.
The officials said the first-stage agreement would include Chinese commitments to do more to stop the theft of intellectual property. And postponing discussions on complex issues such as US complaints for a long time on a wide network of subsidies ranging from cheap electricity to low-cost loans that China uses to build its industrial power.
Oil prices are likely to remain volatile because it is only a partial deal, further negotiations will be necessary in order to reach a comprehensive agreement.