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Oil up Most In 2 Weeks, Betting on U.S.-China Deal

By Barani Krishnan

Investing.com - There are still uncertainties that the Chinese will deliver, but oil traders seem willing to take their chances. Crude prices jumped their most in two weeks on Thursday in anticipation of big orders from China following its much-awaited phase one deal with the United States.

New York-traded West Texas Intermediate, the benchmark for U.S. crude, was up 87 cents, or 1.5%, at $58.68 per barrel by 12:40 PM ET (17:40 GMT).

London-traded Brent, the global crude benchmark, rose 81 cents, or 1.3%, to $64.81.

Thursday’s rebound was the biggest in two weeks for both the benchmarks, although WTI remained below the psychologically-important $60 per barrel level and Brent under the key $65 mark. U.S. crude had raced to eight-month highs of $64.72 and Brent four-month peaks of $71.22 after Iran fired missiles at U.S. airbases in Iraq on Jan. 6, heightening geopolitical tensions in the Middle East, the biggest production hub for oil.

A calmer world since then pushed oil prices to six-week lows, with WTI touching $63.56 and Brent $58.36.

Thursday’s rebound was a belated reaction to the previous day’s phase one agreement, which saw China agreeing to buy $50 billion in U.S. crude oil, liquefied natural gas and other energy purchases over the next two years under a larger $200 billion deal.

“The consensus expectation is that if the deal is respected, China’s crude oil imports from the U.S. will rise to at least 500,000 barrels per day from zero in last October,” said Olivier Jakob, founder of Petromatrix, an oil risk consultancy in Zug, Switzerland.

“However, at this stage, it is difficult to see how China would do this with its current import tariffs; something must change there,” Jakob added.

He explained that if China were to increase its U.S. energy consumption to fulfill the deal, the United States would account for almost all of Chinese oil import growth in the next 12 months “to the detriment of OPEC+ and the North Sea (the production hub for Brent.” But Jakob said he doubted that would happen.

Balancing some of oil’s upside on Thursday was major political uncertainty in Russia following the en bloc resignation of the government in Moscow, while Vladimir Putin remained as president.

The Russian crisis is an important one in oil since the country is the second-largest oil producer after the United States.

Russian Energy Minister Alexander Novak had also been a key decision maker in the OPEC+ alliance that groups Moscow with the Saudi-led OPEC and other oil producers who are not outright members of the cartel.

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