An oil tanker unloads crude oil at a crude oil terminal in Zhoushan, Zhejiang province, China. Picture: REUTERS/STRINGER/CHINA OUT
An oil tanker unloads crude oil at a crude oil terminal in Zhoushan, Zhejiang province, China. Picture: REUTERS/STRINGER/CHINA OUT

London — Oil prices rose slightly on Tuesday, supported by hopes that talks in Beijing between US and Chinese officials might defuse a trade dispute between the world’s two biggest economies, while oil cartel Opec-led supply cuts also tightened markets.

International Brent crude futures gained 55c to $57.88 a barrel by 9.45am GMT. US West Texas Intermediate (WTI) crude oil futures also climbed 55c, to $49.07 per barrel.

“I think there’s a very good chance that we will get a reasonable settlement that China can live with, that we can live with,” US commerce secretary Wilbur Ross said on Monday as officials from both countries held talks to end the spat.

Some analysts warned, however, that the relationship between Washington and Beijing remained shaky and that tensions could soon flare anew.

“Surely, there will be more twists and turns in the saga and increasing US tariffs on Chinese goods after March from 10% to 25% cannot be excluded,” Tamas Varga of PVM Oil Associates said. “For now, however, optimism prevails.”

There is also concern that a worldwide economic slowdown will dent fuel consumption. As a result, the hedge fund industry has significantly cut its bullish positions in crude futures.

S&P Global Ratings said it had lowered its average oil price forecasts for 2019 by $10 a barrel to $55 and $50 a barrel for Brent and WTI, respectively. “Our lower oil price assumptions reflect slowing demand and rising supply globally,” said S&P Global Ratings analyst Danny Huang.

Opec vs shale

Crude prices so far in 2019 have been buoyed by supply cuts from Opec including top exporter Saudi Arabia, as well as non-member Russia. Saudi-based Arab Petroleum Investments, a corporation specialising in funding petroleum projects, estimated in a report on Tuesday that oil prices are likely to trade at $60 to $70 a barrel by mid-2019.

However, looming over the Opec-led cuts is a surge in US oil supply, driven by a steep rise in onshore shale drilling. As a result, US crude oil production rose by 2-million barrels per day (bpd) last year to a world record 11.7-million bpd.

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 production would be “significantly above 12-million bpd” by early January.

Reuters