Oil is stable as traders await outcome of US-China talks
Singapore — Oil prices were stable on Tuesday, supported by the hope that talks under way in Beijing involving US and Chinese officials could end trade disputes between the world’s biggest economies, while Opec-led supply cuts also tightened markets.
International Brent crude futures were at $57.43 a barrel at 2.18am GMT, up 10c, or 0.1% from their last close.
US West Texas Intermediate (WTI) crude oil futures were at $48.62 a barrel, up 10c, or 0.2%.
US commerce secretary Wilbur Ross said late on Monday that Beijing and Washington could reach a trade deal that “we can live with” as dozens of officials from China and the US held talks in a bid to end a trade spat that has roiled global markets since 2018.
Asian stock markets rose as investors hope Washington and Beijing will reach some sort of agreement.
Despite optimism around the talks in Beijing, some analysts warned that the relationship between Washington and Beijing remained on shaky grounds, and that tension could flare up again soon.
“We remain concerned about the world’s most important bilateral relationship,” political risk consultancy Eurasia Group said in its 2019 outlook.
“The US political establishment believes engagement with Beijing is no longer working, and it’s embracing an openly confrontational approach … [and] rising nationalist sentiment makes it unlikely that Beijing will ignore US provocations,” Eurasia Group said.
There is also concern that a worldwide economic slowdown will dent fuel consumption, resulting in a reduction of bullish positions the hedge fund industry holds in crude futures.
Opec vs shale
Looking at oil supplies, 2019 crude prices have been supported by supply cuts from a group of producers around the Middle East-dominated Opec as well as non-Opec member Russia.
“Crude oil prices have benefited from Opec production cuts and steadying equities markets,” said Mithun Fernando, investment analyst at Australia’s Rivkin Securities.
Looming over the Opec-led cuts, however, is a surge in US oil supply, driven by a steep rise in onshore shale oil drilling and production.
As a result, US crude oil production rose by a whopping 2-million barrels a day in 2018 to a world record 11.7-million barrels a day.
With drilling activity still high, most analysts expect US oil production to rise further this year.
Consultancy JBC Energy said it was likely that US crude oil production was already “significantly above 12-million barrels a day” by early January.