Oil moves higher on progress in U.S.-China trade talks

Oil futures moved higher Tuesday, giving up earlier losses following news that the U.S. will delay tariffs on certain Chinese products until December, as the two nations look to continue discussions on trade.

Prices had declined in earlier dealings as worries over the global economic outlook and fears continued protests in Hong Kong could prompt a crackdown by China undercut investor appetite.

“We were looking at continued focus on dimming prospects for global demand growth after the [International Energy Agency] lowered its forecast amid a slowdown in global manufacturing,” Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch.

However, on Tuesday, the U.S. Trade Representative’s office said the U.S. would delay imposing 10% tariffs on certain Chinese products, including cellphones and laptop computers, until Dec. 15. The move comes as a USTR spokesman said U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin held discussions with Chinese Vice Premier Liu He and officials would speak again within two weeks.

The news “boosted all financial markets and reversed losses not just in crude oil but in equities as well,” said Steeves.

Still, “I think the focus will remain on fears of a global slowdown, if not recession, given all the trade tensions and threats to stability. This has been keeping pressure on the market for some time and is likely to continue to do so until trade deals are resolved or some other development emerges,” he said.

The U.S. benchmark, West Texas Intermediate crude for September delivery CLU19, +3.30% on the New York Mercantile Exchange, rose $1.30, or 2.4%, to $56.23 a barrel. The global benchmark, October Brent crude BRNV19, +3.52%, added $1.69, or 2.9%, to $60.30 a barrel on ICE Futures Europe.

Assets perceived as risky, including stocks and most commodities, had been under pressure earlier Tuesday as demonstrators in Hong Kong thronged the city’s airport for a second straight day, heightening worries Beijing could respond with a harsh crackdown. The potential for an international backlash and the interplay with the U.S.-China trade war had underlined concerns about the outlook for global economic growth, analysts said.

Oil, overall, also found underlying support on expectations Saudi Arabia has the incentive to keep oil prices supported, analysts said, noting renewed interest in an initial public offering for state-owned Saudi Aramco.

“With Saudi Aramco reportedly eyeing an IPO once again, there is some support to the idea that Saudi Arabia has a heightened interest in strong crude prices and will cut its own output accordingly,” wrote analysts at JBC Energy, a Vienna-based consulting firm.

The Energy Information Administration late Monday said it expected U.S. oil production in the shale regions to rise to 8.768 million barrels a day in September, an increase of 85,000 barrels a day from August.

“Though this would be a somewhat steeper rise than in the previous months, it would still be significantly smaller than a year ago, when shale oil production was growing by nearly 250,000 barrels per day,” said Carsten Fritsch, analyst at Commerzbank, in a note. “Another thing is striking: the rise in shale oil production is now limited to only the Permian Basin shale play which is by far the largest play.”

That means shale producers are concentrating on the most profitable wells, he said, “which explains why production is becoming detached from the declining drilling activity.”

Oil traders will get an update on weekly U.S. petroleum supplies from trade group the American Petroleum Institute late Tuesday. The EIA will issue its own report early Wednesday.

Analysts polled by S&P Global Platts expect the EIA to report a decline of 2.7 million barrels in crude supplies for the week ended Aug. 9. Gasoline stockpiles are also expected to fall by 700,000 barrels, but distillate inventories are forecast to climb by 870,000 barrels for the week, the survey showed.

Back on Nymex, September gasoline RBU19, +3.37% rose 5.6 cents, or 3.4%, to $1.721 a gallon, while September heating oil HOU19, +2.92% was up 4.6 cents, or 2.5%, at $1.852 a gallon.

September natural gas NGU19, +2.52% tacked on 3 cents, or 1.4%, at $2.136 per million British thermal units.

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