Crude oil surges to highest level since 2014 as Xi allays trade war fears

Saudi Arabia is said to want to get prices nearer to $80 a barrel to fund domestic spending programmes

In two days, the oil market dispelled the pessimism of two weeks largely dominated by concerns over US-China tensions. Ali Jarekji /Reuters

Oil jumped to its highest level since 2014 as China struck a conciliatory tone on trade and Saudi Arabia was said to seek higher prices.

Futures in London jumped by almost 4 per cent on Tuesday as equities also climbed. Chinese president Xi Jinping said zero-sum mentalities were “out of place” and backed dialogue to resolve disputes, dissipating fears of a trade spat with the US. Meanwhile, Saudi Arabia is said to want to get prices up to near $80 to fund spending and support the valuation of its state oil giant’s initial public offering.

“It’s a risk-on type day,” said Bob Yawger, director of futures at Mizuho Securities USA in New York. “The biggest correlation is to the equity markets.”

In two days, the oil market dispelled the pessimism of two weeks largely dominated by concerns over US-China tensions and a build-up of stockpiles at America’s largest distribution hub in Oklahoma.

Brent for June settlement climbed $2.69 to $71.34 a barrel on the London-based ICE Futures Europe exchange, its highest price since December 2014, after settling at $71.04.

West Texas Intermediate for May delivery rose $2.09 to settle at $65.51 a barrel, the highest in two weeks, on the New York Mercantile Exchange.

The Chinese leader pledged a “new phase of opening up” in a long-planned speech that was closely watched by traders for any response to US President Donald Trump’s plan to hit hundreds of Chinese products with duties. Following Mr Xi’s speech, Asian stocks and US futures jumped.

In conversations with Opec delegates and oil market participants, Saudi officials had been careful to avoid pinpointing an exact price target. Yet people who have spoken to them said the inescapable conclusion from the conversations was that Riyadh is aiming for $80.

“The day-to-day price action that we’ve seen is really about risk appetite and not so much fundamentals,” said Michael Wittner, the head of commodities research at Societe Generale in New York.

The S&P 500 Energy Index climbed as much as 4 per cent, the biggest intraday advance since November 2016. The best performers include Devon Energy, TechnipFMC and Newfield Exploration, all posting gains of more than 6 per cent.

In the US, crude inventories probably fell by 1.25 million barrels last week, according to a Bloomberg survey ahead of government data that will be released on Wednesday. That would follow a surprise decrease of 4.6 million barrels a week earlier. Stockpiles held at the key Cushing, Oklahoma, pipeline hub likely rose by 2 million barrels last week, a forecast compiled by Bloomberg showed.