Oil prices rose more than 2 per cent on Thursday to the highest in nearly two months following a Reuters report that OPEC and its allies are likely to extend output cuts until mid-2020 and fresh signs that China had invited U.S. trade negotiators for a new round of talks.
Brent crude ended the session up $1.57, or 2.5 per cent, at $63.97 a barrel, while West Texas Intermediate (WTI) crude settled up $1.57, or 2.8 per cent, to $58.58.
WTI touched a session high of $58.67 a barrel, the highest since Sept. 23 and Brent climbed to a high of $64.03, the highest since Sept. 24.
To support oil prices, the Organization of the Petroleum Exporting Countries and its allies are likely to extend output cuts to June when they meet next month, according to OPEC sources.
OPEC meets on Dec. 5 at its headquarters in Vienna, followed by talks with a group of other oil producers, lead by Russia, known as OPEC+. The current supply cuts deal runs through to March 2020.
The sources told Reuters that formally announcing deeper cuts looked unlikely for now although a message about better compliance with existing curbs could be sent to the market.
Russian President Vladimir Putin said on Wednesday Russia and OPEC had “a common goal” of keeping the oil market balanced and predictable, and Moscow would continue cooperation under a global deal cutting oil supply.
“I think the market is pretty much resigned to the fact that economic growth is slowing as is the rate of increases in oil demand where forecasts having been revised lower continually... a lot of that bearishness has been priced in, so that the upcoming OPEC meeting and unrest in Iran and Iraq is becoming the focus,” said Andrew Lipow, president of Lipow Oil Associates in Houston.
“The market is well supplied and in my opinion, that will likely force OPEC and non-OPEC producers’ hand to extend their cuts through 2020.”
Unrest erupted on Nov. 15 in Iran after the government announced gasoline price hikes of at least 50 per cent, and quickly turned political with protesters demanding top officials to step down.
In Iraq on Thursday, seven people were killed when security forces shot live fire and tear gas canisters at demonstrators in Baghdad, security and medical sources said, in renewed deadly violence as authorities seek to crush anti-government protests.
Also supportive for the markets, the Chinese commerce ministry said China will strive to reach an initial trade agreement with the United States as both sides keep communication channels open.
A Reuters report on Wednesday said completion of a “phase one” U.S.-China trade deal could slide into next year.
Amid the long-drawn trade war between the United States and China, U.S. President Donald Trump is expected to sign two bills passed by Congress intended to support protesters in Hong Kong, a move likely to anger China.
Hong Kong has seen increasingly violent protests against Chinese rule for several months and the passage of the bills could potentially undermine efforts to secure a trade deal.
“Positive speak from China is not offsetting expectations that President Trump will sign a bill supporting Hong Kong protesters,” said Edward Moya, senior market analyst at OANDA in New York.
“The timing of phase one deal is unclear, but markets are starting to get nervous we could see a repeat of the collapse in talks that took place in May.”
The Wall Street Journal also reported on Thursday that China had invited top U.S. trade negotiators for a new round of talks in Beijing, citing unnamed sources.
A report in the South China Morning Post said the United States could delay tariffs on Chinese imports even if a deal was not reached by Dec. 15.
BNP Paribas raised its oil price forecasts for this year and 2020 from its previous estimates, citing increased refinery throughputs due to upcoming new regulation on shipping fuels.