Oil prices rose above $70/barrel on Tuesday after Chinese President Xi Jinping promised to open up China’s economy further and lower import tariffs. BP photo.
Oil prices up, gold US Treasuries under pressure
Oil prices topped $70/barrel on Tuesday on investor confidence that a burbling trade spat between the United States and China might be settled without further damage to the global economy.
At 1:08 p.m., EDT, benchmark Brent was up by $2.08 to $70.73/barrel, and US WTI had risen $1.87 to $65.29/barrel. The Canadian Crude Index jumped $2.14 to $48.53.
Oil’s biggest two-day rally in nearly a month came after China’s President Xi Jinping vowed to open up China’s economy and lower import tariffs. These comments helped ease trade tensions between the US and China.
Following Xi’s remarks, equities and industrial commodities rose and traditional safe-havens, including gold and US Treasuries were pressured as investors grew more confident that a trade war between the world’s two largest economies was increasingly unlikely.
According to Reuters, oil prices are up by almost 5 per cent in the last two trading days and now is only about 1 per cent below the year’s highest level of $71.05 reached in late January.
“It’s not so much ‘risk on/risk off’, as it is ‘trade war on/trade war off’ and, at the moment, we’re ‘trade-war off’,” London Capital Group’s Jasper Lawler told Reuters.
“There’s a lot of political motivation in the tariffs in the United States, but ultimately, they won’t want a trade war, there is a general desire to boost the U.S. economy.”
The possibility of a trade war has upped global trading volatility substantially in the last few weeks.
Two weeks ago after Saudi Arabia said it was going to keep the OPEC supply cut agreement in place into next year, oil prices rose to over $70/barrel. However, the Trump administration’s decision to impose $50 billion in tariffs on Chinese goods one week later dropped oil prices to a two-week low.
Oil prices have recently been underpinned by rising global demand and the OPEC supply cuts which have helped reduce the global oil inventory.
However, US crude production has jumped by about 25 per cent since mid-2016 and is threatening to undermine OPEC’s efforts to rebalance the oil market.
On Tuesday, the American Petroleum Institute will release its data on US crude inventories and the US Energy Information Administration will offer its monthly report Wednesday on US oil production.
“The latest monthly estimates will come out this week with the EIA leading the pack, publishing its Short-Term Energy Outlook this afternoon,” PVM Oil Associates strategist Tamas Varga told Reuters.
“The EIA said that U.S. crude oil output is chiefly the function of price. If this is the case, then no downward revision is anticipated today.”