U.S./China Trade Breakthrough Boosts Oil Prices - With More Gains To Come, Say Analysts

by Ship & Bunker News Team
Friday December 13, 2019

The geopolitical breakthrough traders had been waiting months for finally came to pass on Friday with Washington and Beijing announcing a Phase One trade agreement that not only reduces some U.S. tariffs in exchange for increased purchases by China of American farm goods but also goes a long way in reducing hostilities between the two countries.

As a result, Brent on Friday gained $1.02, or 1.6 percent, to settle at $65.22 per barrel, while West Texas Intermediate rose 89 cents, or 1.5 percent, to $60.07.

To put matters into perspective, the gains put oil to a level not seen since after the attacks on Saudi Arabia's crude infrastructure in September, and if this was disappointing to some, Daniel Ghali, a  commodity strategist at TD Securities, explained that "The market has just priced in this outcome to a certain extent already; the hope is that a trade deal will translate into more demand."

Phil Flynn, senior market analyst at Price Futures Group, remarked, "It looks like president Donald Trump got his trade deal just in time for Christmas," but he added that while "markets jumped" on the news, he would like to see more details about the agreement as it pertains to China.

For the record, China has agreed to buy $32 billion of additional U.S. farm products over two years as part of the pact, but Chinese officials offered no specifics on the amount of U.S. agricultural goods Beijing has agreed to buy.

Oil on Friday also enjoyed strong support from the majority sweep Britain's conservative party achieved in that country's general election, and the win means the end of uncertainty over Brexit with new prime minister Boris Johnson vowing to swiftly remove the U.K. from the European Union.

Bjarne Schieldrop, an analyst at SEB, was unreserved in his estimation for what these two events would do for crude: "It's up we go for Brent crude," he said, adding that "Oil demand growth will likely rebound along with a rebound in global manufacturing."

Eugen Weinberg, an analyst at Commerzbank, agreed: "Risk appetite among financial investors is now likely to remain high......this will also benefit the oil price."