Oil prices rise on clear results on UK election and US-China trade
Brent at highest since September with a weaker dollar lending support as new Opec+ oil supply cut starts are due to start in January
London — Oil rose on Friday to its highest in nearly three months as progress in resolving the US-China trade dispute and Britain’s general election result appeared to lift two clouds that have been dampening investor appetite for risk.
US sources said on Thursday that Washington has set its terms for a trade deal with Beijing, offering to suspend some tariffs on goods and cut others in exchange for Chinese purchases of more American farm goods.
Brent crude, the global benchmark, climbed to $64.95 a barrel, the highest since September 23, and as of 10am GMT was up 71c at $64.91. US West Texas Intermediate (WTI) crude gained 52c to $59.70.
The 18-month trade war has been a dampener for oil prices, while uncertainty around Brexit has also weighed. Britain’s ruling Conservative Party won a large majority in Thursday’s general election, giving it the power to take the country out of the EU.
“An eventful past 24 hours has removed a layer of uncertainty for the global economy,” said Stephen Brennock of oil broker PVM. “Yet it remains to be seen whether the return of the feel-good factor is enough to set oil prices on a definitive northerly trajectory.”
A drop in the dollar against the backdrop of a strong pound helped boost commodities. The pound surged more than 2% on Thursday supported by the election result.
“Risk appetite among financial investors is now likely to remain high thanks to the deal between the US and China and the forthcoming end to the Brexit cliffhanger,” said Eugen Weinberg, an analyst at Commerzbank. “This will also benefit the oil price.”
Brent has rallied by almost 21% in 2019, supported by efforts by oil cartel Opec and allies including Russia (Opec+) to cut production. Opec+ agreed last week to lower supply by a further 500,000 barrels per day (bpd) as of January 1. They have been limiting supply since 2017, helping to clear a glut that built up in 2014-2016.
Opec’s own research indicates that the oil market in 2020 may see a small supply deficit, although the International Energy Agency (EIA) sees global inventories rising despite the further step by Opec+.