Crude oil prices rose by more than 1% on Wednesday, increasing their appreciation from the previous session due to reports that Washington and Beijing could soon resolve their trade dispute, which is one of the major risks to the global economy.
The futures on the WTI oil with delivery in February rose by 1.19% to 50.37 USD per barrel. Thus, the oil variety crossed the 50 USD per barrel threshold for the first time this year. For Brent, futures with delivery in March rose by 1.12% to 59.38 USD per barrel.
Both most traded oil prices rose by more than 2% in the previous session.
The commodity continues to raise its price as the first news coming from Beijing on trade talks is optimistic about the development of US-China relations, which might end the devasting trade war between the two countries.
Trade talks between the world’s two largest economies have entered its third day on Wednesday amid significant progress on some issues including buying the US agricultural and energy goods and facilitating US companies access to the Chinese market.
China Daily wrote on Wednesday that Beijing is ready to put an end to its trade dispute with the United States, but it will not make “unreasonable concessions”, so any deal should include a compromise on both sides.
If no agreement is reached by March 2, Donald Trump said he would continue to raise duties from 10% to 25% on Chinese imports worth 200 million USD at a time when China’s economy is slowing down significantly. Exactly because of trade strain, the World Bank expects global economic growth to slow down to 2.9% in 2019 compared to 3% in the past year.
In addition to the policy, the oil markets are also backed by a drop in supplies from OPEC+ group. According to the latest agreement, dating from the beginning of December, the OPEC+ group must shrink its oil production by 1.2 million barrels per day since January 1, but No data on the execution of the deal are yet published.
If the OPEC countries and their allies comply with the cutback arrangements, the oil market is likely to rebalance in the first half of the year. However, some analysts see OPEC+ cuts as too short, compared to what is needed in the market to achieve a balance. However, the outlook looks much tighter than it was in December.
Saudi Arabia targets oil price of 80 USD per barrel
In hoping to bring the price levels back to 80 USD per barrel, Saudi Arabia is preparing an even larger cut in production this month. The Arab kingdom plans to lower oil exports to 7.1 million barrels per day by the end of January.
Saudi Arabia’s budget will not rise if the price of the Brent variety does not reach values of the order of 80 USD per barrel, but currently, it is 20 USD less.
The Kingdom intends to make cuts of 800,000 barrels per day compared to November levels, which will be a greater reduction than the arrangements at the OPEC+ meeting at the end of last year.
Saudi Arabia made an aggressive approach to the markets to get out of the oversaturation and sinking prices.
Both benchmarks have experienced a 16% rally since they reached their lowest levels in December. The impulse is coming back to the market at those low levels.
Several other factors contribute to almost two-week rally. One of them is the softer tone of the US Federal Reserve, which last week gave an impetus to global stock exchanges, melting away the fear of a tightening of monetary policy that could put the global economy in recession.
Most investment banks predict strong price growth in 2019, though some do not share the view that levels will return to those from early October 2018.