Oil prices rise as U.S. trade deals with Mexico, Canada and China boost demand prospects

Oil futures moved up sharply on Thursday as news of the Senate approval of the U.S.-Mexico-Canada trade agreement combined with the first phase of the China-U.S. trade deal signed a day earlier to boost prospects for energy demand.

Crude-oil prices were already up due to the signing of the trade deal with Beijing that “could mean more U.S. oil headed for China, in addition to the prospects for improved global economic growth this year, which ought to improve oil demand growth,” said Marshall Steeves, energy markets analyst at IHS Markit.

The Senate approval of the USMCA added to those earlier gains, “in theory,” he told MarketWatch. “It remains to be seen how much new trade actually results from the agreement, but there should be some improvement at the margins.” Mexico and Canada are the top two destination countries for U.S. petroleum exports.

In a broader context, however, the U.S. benchmark crude oil price is “back where it was just a few days ago, so today’s gain marks no apparent change in trend,” he said.

West Texas Intermediate crude for February delivery CLG20, +1.57% was up 90 cents, or 1.6%, at $58.71 a barrel on the New York Mercantile Exchange, after trading as high as $58.87. Prices on Wednesday settled at $57.81, the lowest for a front-month contract since Dec. 3, according to Dow Jones Market Data.

March Brent BRNH20, +1.27%, the global benchmark, picked up 86 cents, or 1.3%, to reach $64.86 a barrel on ICE Futures Europe, following its lowest finish since Dec. 11 in the previous session.

Wednesday “marked the formal signing of a phase one trade agreement between the US and China, bringing some relief at least for now for one of the market’s most consistent downside risk factors,” said Robbie Fraser, senior commodity analyst at Schneider Electric.

“Still, a theoretical phase two agreement would likely be much broader in scope and difficulty, suggesting trade discussions between the world’s two largest markets are still likely to sway markets during the year ahead,” he said in a daily note.

According to the 96-page, first-phase Sino-American agreement signed on Wednesday, China has pledged to buy at least $52.4 billion of U.S. energy products over the next two years.

“Shale producers are looking at the deal with cautious optimism with the commitment to buy 50 billion in energy products over the next two years,” wrote Phil Flynn, senior market analyst at the Price Futures Group, in a Thursday report.

“While the breakdown of exactly what they are going to buy is unclear, it is welcome news for U.S. shale producers that have been fighting an uphill battle producing more but making less or losing money,” he wrote.

International tensions over trade policy have been one of the biggest headwinds for commodities like crude-oil, which tends to see price gains amid the expectations of healthy economic growth which can foster stronger consumption.

Beyond trade developments, energy investors weighed signs of rising petroleum-product supplies. A report from the Energy Information Administration data on Wednesday showed much bigger-than-expected supply increases of 6.7 million barrels for gasoline and 8.2 million barrels for distillates for the week ended Jan. 10. U.S. crude supplies, however, fell by 2.5 million barrels last week, EIA data showed.

Prices for petroleum products saw mixed trading on Thursday, with February gasoline RBG20, +0.82% up 0.9% at $1.6511 a gallon and February heating oil HOG20, -0.62% trading at $1.868 a gallon, down 0.5%.

Meanwhile, in a monthly report released Thursday, the International Energy Agency left its global demand growth forecasts unchanged. It estimated demand growth of 1 million barrels a day for 2019 to total world demand of 100.3 million barrels a day. For 2020, it forecast demand growth of 1.2 million barrels a day to total demand of 101.5 million barrels a day.

Rounding out action on Nymex, February natural gas NGG20, +1.27% rose 2.8 cents, or 1.3%, to $2.148 per million British thermal units after U.S. government data revealed a bigger-than-expected weekly decline in supplies of the fuel.

The EIA reported Thursday that domestic supplies of natural gas fell by 109 billion cubic feet for the week ended Jan. 10. Analysts expected a fall of 92 billion cubic feet, on average, according to a survey conducted by S&P Global Platts.

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