Oil Heads for Weekly Drop Amid Demand Concerns
(Bloomberg) -- Oil held its biggest gain in almost two weeks on optimism a more conciliatory approach on trade from the U.S. will help revive growth, but was still headed for a weekly drop amid persistent demand concerns.
Futures in New York edged higher after closing up 1.2% Thursday. Washington and Beijing signed a phase-one trade deal on Wednesday, while the Senate passed the U.S.-Mexico-Canada free trade agreement a day later. A big jump in American oil-product stockpiles last week highlighted sluggish demand.
China pledged $52.4 billion in additional purchases of American energy over 2020 and 2021 in the agreement, although there was some skepticism in the market about whether it would be able to reach the target. Meanwhile, the International Energy Agency warned in its monthly report that supplies from Iraq, the Middle East’s second-biggest producer, are potentially vulnerable due to rising political risks in the country and broader region.
“The big mover for oil was the double whammy of positivity from the U.S.-China trade deal and the Senate passing the USMCA,” Stephen Innes, Asia Pacific market strategist at AxiTrader, said in a note. That “should provide a significant lift to the U.S. economy and give a boost to oil prices since the U.S. is the largest consumer of oil,” he said.
West Texas Intermediate crude for February delivery added 9 cents to $58.61 a barrel on the New York Mercantile Exchange as of 7:33 a.m. in London. It’s down 0.7% this week, set for the first back-to-back weekly drop since October.
Brent for March settlement rose 0.2% to $64.74 on the ICE Futures Europe exchange after climbing 1% on Thursday. The contract has fallen 0.4% for the week. The global benchmark crude traded at a $6.09 premium to WTI for the same month.
China’s pledge to buy more U.S. energy looks challenging to meet, particularly if it leaves retaliatory tariffs on American oil and LNG in place. It’s also unclear to what extent the agreement -- which doesn’t remove most of the duties imposed during the trade war -- will revive global economic growth.
The IEA left is global crude demand forecast for 2020 unchanged at 1.2% and also kept its estimate for non-OPEC supply at similar levels. While the Organization of Petroleum Exporting Countries is sticking to an aggressive policy to cut output and prop up prices, there are concerns its efforts may prove fruitless amid rising production from countries outside the group.
--With assistance from James Thornhill.
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