Oil steadies above $65 as trade war de-escalates

The US and China are in the process of fine-tuning their 'phase-one' trade pact

(FILES) this file photo taken on November 09, 2017 shows US President Donald Trump (L) and China's President Xi Jinping leaving a business leaders event at the Great Hall of the People in Beijing.  The United States and China announced a major thaw in their trade war Friday, including immediate cuts to punishing import tariffs, but markets were not impressed.
"We have agreed to a very large Phase One Deal with China," President Donald Trump tweeted after officials in Beijing made a similar announcement.
 / AFP / Nicolas ASFOURI
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Oil maintained its position at a two-month high of above $65 per barrel after the US and China reached consensus on a much-awaited "phase-one" trade pact.

Brent was trading 0.28 per cent lower at $65.52 per barrel at 3:05pm UAE time, while West Texas Intermediate was also slightly down by 0.1 per cent at $60.27 per barrel.

Prices began to rally as soon as the two countries said they have reached a partial truce, which suspends 15 per cent of US tariffs that were earmarked for December 15 on $160 billion worth of Chinese goods, in addition to halving tariffs on another set of $120bn worth of imports.

In response, China agreed not to raise tariffs on US cars and other goods. The country also committed to purchase $200bn worth of US goods and services, including up to $50bn worth of agricultural products.

The terms of the phase-one agreement have been agreed but the legal text is yet to be finalised.

Investment bank JP Morgan raised its oil price outlook on Tuesday, forecasting Brent to trend upwards at $64.5 per barrel in 2020 from $59 earlier. The bank based its assessment on tightening of supplies next year due to efforts by the Saudi-Russian-led Opec+ alliance to contain global inventories.

The group is expected to start restricting 2.1 million barrels per day from the beginning of January, propped up by Saudi Arabia's additional voluntary adjustments of 400,000 bpd.

JP Morgan revised down its forecast for Brent in 2021 to $61.50 per barrel.

The bank expects WTI meanwhile to average $60 per barrel next year and $57.5 in 2021.

The partial cessation of trade hostilities between the world's two biggest economies has lifted sentiment over demand growth for crude and led to a rally in US equity markets. The escalating dispute had kept prices depressed and largely immune to geopolitical shocks, notably from supply centres such as the Middle East.

The International Monetary Fund in October cited increased protectionism as well as uncertainty related to trade and geopolitics behind what it called a "synchronised slowdown" in global economic growth. The multilateral lender projected the world economy to grow 3 per cent this year, a 0.3 percentage point downgrade from its April forecast, and its fifth outlook revision for 2019. Economic growth averaged 3.6 per cent last year. The global economy is forecast to pick up to 3.4 per cent in 2020, a 0.2 percentage point reduction from an earlier forecast.