Oil rallies as traders weigh potential outcomes for U.S.-China trade talks

Oil futures moved higher in volatile trading Thursday as traders weighed potential outcomes for U.S.-China trade talks, which are likely to have a direct impact on demand for energy.

Oil had seen earlier support from expectations that the U.S. will extend its deadline for implementing additional tariffs on Chinese goods by 60 days, according to Bloomberg News, but also spent time trading lower.

Trade talks between the two countries continue. U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer will meet China President Xi Jinping in Beijing on Friday, the South China Morning Post reported.

March West Texas Intermediate crude oil CLH9, +0.89% rose 28 cents, or 0.5%, to trade at $54.18 on the New York Mercantile Exchange, after gaining 1.5% on Wednesday for its highest close since Feb. 6, according to Dow Jones Market Data.

Meanwhile, April Brent LCOJ9, +1.21% added 80 cents, or 1.3%, at $64.41 on the ICE Futures Europe exchange, a day after posting its highest finish since Nov. 19.

“Prior to this week the market had been gripped by fears around global economic activity and those fears have eased somewhat, particularly on the trade front,” said Caroline Bain, commodities economist at consulting firm Capital Economics. The positive “rumblings” around the U.S.-China trade dispute have helped, Bain added. 

Week to date, WTI prices trade around 2.8% higher, while Brent was looking at a rise of 3.6%.

Over in China, the market saw upbeat data on crude imports, which were up around 5% on the year in January, according to customs data published Thursday. The strong volumes helped allay fears of an economic slowdown in the world’s second-largest economy, analysts said.

Meanwhile, the Energy Information Administration’s report on Wednesday revealed a bigger-than-expected rise in U.S. crude stockpiles, along with increases for gasoline and distillate inventories for the week ended Feb. 8.

On Nymex Thursday, March gasoline RBH9, +2.42% added 2.2% to $1.498 a gallon and March heating oil HOH9, +1.18% rose 1.1% to $1.961 a gallon.

The “steep decline in refinery runs signals lowered crude demand expectations over the near-term as maintenance season ramps up,” said Robbie Fraser, global commodity analyst at Schneider Electric.

“On the supportive side though, Russia claims to be accelerating required cuts under the latest OPEC+ agreement, after failing to drop production levels according to earlier data,” Fraser said in a note. He referred to a report that Russian energy minister Alexander Novak said February output levels should see a decline of about 150,000 barrels a day relative to December.

The de facto leader of the Organization of the Petroleum Exporting Countries, Saudi Arabia, pledged earlier this week to cut output further in the coming months, according to the Financial Times (paywall), citing oil minister Khalid al-Falih, who said the country would cut an additional 500,000 barrels a day to take production to 9.8 million barrels a day in March.

The moves coincide “with likely involuntary declines from Iran and Venezuela, making it increasingly difficult for U.S. shale or any other producer to prevent global supply from seeing net declines heading into peak demand season,” said Fraser.

In other Nymex dealings, prices for natural gas held on to an earlier gain after the EIA reported Thursday that domestic supplies of natural gas fell by 78 billion cubic feet for the week ended Feb. 8. That matched the average forecast of analysts polled by S&P Global Platts, but was well below the five-year average decline of 160 billion.

The decline in storage “helps the bull camp for now,” with prices finding “major support” at $2.50, said Scott Gecas, chief market strategist at Walsh Trading. However, “with warmer than expected weather in the 10-day forecast, this does favor [a] heavy bearish tone.”

March natural gas NGH19, +0.39% traded at $2.59 per million British thermal units, up 0.6%.

Mark DeCambre contributed to this article

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