An oil well is seen near Denver, Colorado. Picture: REUTERS
An oil well is seen near Denver, Colorado. Picture: REUTERS

London — Oil prices gained about 1% on Tuesday, supported by Opec-led production cuts and US sanctions against Iran and Venezuela, though they remain wary of surging US output and the outcome of US-China trade talks.

Brent crude futures were up 61 US cents at $62.12 a barrel and US West Texas Intermediate (WTI) crude oil futures rose 54c to $52.95 a barrel by 9.50am GMT.

The continuing closure of parts of the Keystone pipeline that brings Canadian oil into the US also helped to prop up WTI, traders said, after a partial shutdown at a Phillips 66 crude distillation unit led to initial sell-offs on Monday.

Analysts said markets were tightening because of voluntary production cuts led by Opec and allies including Russia, as well as US sanctions on Opec members Venezuela and Iran.

Saudi Arabia, the world’s top exporter and de facto leader of Opec, said on Tuesday that it would reduce oil production to nearly 9.8-million barrels per day (bpd) in March, about 500,000 bpd more than it originally pledged.

Also at the radar are hopes expressed by US and Chinese officials that a new round of talks, which began in Beijing on Monday, would bring them closer to easing their months-long trade war.

Beijing and Washington are trying to hammer out a deal before a March 1 deadline, without which US tariffs on $200bn worth of Chinese imports are scheduled to increase to 25% from 10%.

However, climbing US oil production, fighting near Libya’s main oilfield, sanctions on Venezuela and suspense over whether the US will to grant more waivers to import Iranian oil leave markets unsure about the broader supply picture.

“We believe that oil is not pricing in supply-side risks lately as markets are currently focused on US-China trade talks”, JP Morgan said in a weekly note.

Should US-China talks succeed, the US bank said that oil markets would “switch attention from macro concerns impacting future demand growth to physical tightness and geopolitical risks impacting immediate supply”.

Any economic slowdown in 2019 could cap oil markets.

Bank of America also warned of a “significant slowing” in global growth, adding that it expected Brent and WTI to average $70 and $59 a barrel, respectively, in 2019 and $65 and $60 in 2020.

Reuters