Oil Down as Investors Weigh Trade Deal Progress

Oil Down as Investors Weigh Trade Deal Progress
Oil pared a weekly gain as investors weighed signs of progress in the prolonged U.S.-China trade war that's undermined global crude demand.

(Bloomberg) -- Oil pared a weekly gain as investors weighed signs of progress in the prolonged U.S.-China trade war that’s undermined global crude demand.

While futures in New York lost 1.1% on Friday, oil is still up 0.6% for the week. The U.S. and China have agreed to roll back tariffs on each other’s goods in phases as they work toward a deal, according to both sides. Renewed trade optimism offset swelling American crude inventories and indications OPEC and its allies won’t make deeper cuts to supply.

Oil is still down almost 15% since an April peak as the trade spat sapped crude consumption and global supplies expanded. The Organization of Petroleum Exporting Countries and its partners will likely keep output steady when they meet next month as markets are on track to re-balance, according to Goldman Sachs Group Inc. and Trafigura Group Ltd.

An announcement on a completed phase one trade deal “would send oil prices significantly higher,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney, predicting West Texas Intermediate crude could climb as high as $65. “But as we’ve seen many times, trade-talk sentiment reverses very sharply and we are vulnerable to further falls in the near term.”

WTI for December delivery declined 60 cents to $56.55 a barrel on the New York Mercantile Exchange as of 6:39 a.m. London time. The contract rose 80 cents to $57.15 on Thursday.

Brent for January settlement fell 53 cents, or 0.9%, to $61.76 a barrel on the London-based ICE Futures Europe Exchange. The contract is up 0.3% this week. The global benchmark crude traded at a $5.19 premium to WTI.

Rolling back tariffs would pave the way for a de-escalation in the trade war that’s cast a shadow over the world economy. China’s key demand since the start of negotiations has been the removal of punitive tariffs, which by now apply to the majority of its exports to the U.S.

OPEC and its partners are more likely to stick to their current output targets and encourage members to comply more fully when they meet next month, according to delegates across the coalition. While demand for commodities is “terrible,” non-OPEC supply growth is slowing as excessive capital expenditure diminishes, Goldman’s Head of Commodities Research Jeff Currie said Thursday at the Bloomberg Commodity Investor Forum in London.

--With assistance from James Thornhill.

To contact the reporter on this story:
Ann Koh in Singapore at akoh15@bloomberg.net

To contact the editors responsible for this story:
Serene Cheong at scheong20@bloomberg.net
Ben Sharples, Andrew Janes


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