China-US trade deal progress help oil prices stay near three-month highs

Oil prices stayed close to three-month highs on Friday as the China-U.S. trade talks showed signs of progress.

futures rose 2 cents, or 0.03%, to 66.56 a barrel by 0145 GMT, whereas the U.S. West Texas Intermediate (WTI) crude was down 9 cents, or 0.15%, at $61.09 per barrel.

Both are still on track for a third consecutive weekly rise.

The trade dispute between the United States and China, both the world’s two biggest oil consumers, have affected demand previously. But recent developments have raised expectations that there will be stronger demand to come.

On Thursday, China announced import tariff exemptions for six oil and chemical products from the U.S., just a few days after both sides reached an interim trade deal. The exemption will be in force for 12 months, ending on December 26, 2020.

Deeper output cuts by major producers are also said to provide tailwind for the market.

Both JP Morgan and Goldman Sachs raised their 2020 oil price outlook earlier this week as The Organization of Petroleum Exporting Countries (OPEC)-led output cuts and an improved global trade outlook led to more optimism.

“A world with less uncertainty (following last week’s proposed U.S.-China trade agreement) was the real driver of the market optimism on the 2020 outlook,” ANZ Research said in a note.

OPEC and its allies including Russia agreed earlier in December to make a further cut of 500,000 barrels per day (bpd) from Jan. 1 on top of previous reductions of 1.2 million bpd.

A drop in inventories also helped oil prices to stay near three-month highs.

According to the Energy Information Administration (EIA), oil stockpiles fell by 1.1 million barrels to 446.8 million barrels in the week to Dec. 13.

ANZ Research stated than “an expected fall in U.S. drilling activity should support oil prices.”

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