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Oil Prices Rise on Trade Relief But Doubts Remain

By Peter Nurse

Investing.com - Oil prices rose on Thursday, helped by optimism generated by the conclusion of the first phase of the trade deal between the U.S. and China.

At 10:20 AM ET (14:20 GMT), U.S. crude futures traded 1.0. higher at $58.38 a barrel, while the more international-based Brent climbed 1.0% to $64.64 in trading that was largely technically-driven.

Under the terms of the deal, the U.S. cut tariffs on $120 billion in Chinese goods to 7.5% from 15%. China agreed to increase purchases in the U.S. by $200 billion over the next two years, including just over $50 billion in additional energy purchases. This is positive news for U.S. energy producers.

However, doubts remain over how China will achieve this. It would need to sharply accelerate imports of U.S. oil to fulfill the pledge. Official data show imports peaked at 14.7 million barrels in January 2018, and this would have to jump to 21.9 million barrels a month this year and 36.2 million barrels in 2021.

"These flows have largely dried up since the start of the trade war, and so a resumption of flows would be welcome news to US producers," according to ING analysts Warren Patterson and Wenyu Yao at ING.

These gains notwithstanding, the overall tone in the crude markets remain weak, and prices are only marginally above six-week lows.

At the same time the latest U.S. government data showed that combined inventories of crude and refined products rose to their highest since September. This played into expectations that global markets will be oversupplied this year.

Earlier Thursday, the International Energy Agency that crude supplies from Iraq, the Middle East’s second-biggest producer, are “potentially vulnerable", amid rising political risks in the country and the broader region.

Iraq’s oil exports have doubled during the last decade to reach 4 million barrels a day, the Paris-based IEA said in its latest monthly report.Iraq’s fragile security situation may limit its plans to expand oil-production capacity in the medium-term, making it difficult for the global industry to meet rising demand in the second half of the decade.

The IEA left its global demand forecast for this year unchanged, a day after OPEC cut its forecast by a modest 50,000 barrels a day

Of more short-term interest was the news that warring factions in OPEC member Libya had agreed to a ceasefire, removing - at least for now - a risk factor to supplies from that country. Libya exports 1.172 million barrels a day currently, according to UBS analyst Giovanni Staunovo.



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