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Oil prices notch daily, weekly gains on U.S.-China trade optimism, rig-count drop

By Myra P. Saefong / MarketWatch

Petroleumworld 01 18 2019

Oil prices climbed Friday to post a third weekly gain in a row, as news on negotiations between the U.S. and China raised hope for an end to the trade dispute and separate data pointed to further declines in global crude production.

The biggest weekly decline in the U.S. oil-rig count in nearly three years, based on Baker Hughes BHGE, +1.99%  data, also contributed to oil's gains on Friday.

West Texas Intermediate crude for February delivery CLG9, +3.25%  rose $1.73, or 3.3%, to settle at $53.80 a barrel, after losing 0.5% Thursday on the New York Mercantile Exchange. The U.S. benchmark ended the week 4.3% higher.

March Brent crude LCOH9, +2.29%  rose $1.52, or 2.5%, to $62.70 a barrel on ICE Futures Europe. For the week, the global benchmark settled 3.7% higher.

On Friday, Baker Hughes reported that the number of active U.S. rigs drilling for oil dropped by 21 to 852 this week. That marked a third straight weekly decline and the largest weekly decline since February 2016. The reduction implies a slowdown in future production activity.

The EIA's monthly Drilling Productivity report, which includes expectations for February U.S. shale production, is due out Tuesday, after Monday's Martin Luther King, Jr. holiday .

Oil prices had settled lower Thursday, pressured by recent data showing a climb in weekly U.S. oil production, but spiked higher in electronic trade late Thursday after The Wall Street Journal reported that U.S. officials were debating a possible ease in tariffs on Chinese imports, to give Beijing incentive to make deeper concessions over the trade dispute.

Optimism lingered even though a Treasury spokesman told the WSJ that any bargaining positions remained “at the discussion stage.” The source also said that neither Treasury Secretary Steven Mnuchin nor U.S. Trade Representative Robert Lighthizer have made any specific trade-related recommendations and talks were still ongoing.

China offered to lift its imports from the U.S. for six years during talks earlier this month in Beijing, to help clear the U.S. trade imbalance, Bloomberg reported Friday, citing officials familiar with the negotiations.

Uncertainty over whether the U.S. and China will make headway on a lingering trade dispute has at times served to weigh down investor sentiment. And it has raised questions about the health of China, one of the world's biggest importers of crude. Investors will get an important update on Chinese growth with fourth-quarter gross domestic product data due out Monday.

Meanwhile, global demand is expected to be stronger this year versus last year as lower prices soothe the impact of slowing economic activity, according to a monthly report from the International Energy Agency released Friday . That forecast, however, remains vulnerable to a deeper pullback, the report said.

The IEA kept its view that demand growth was at 1.3 million barrels a day in 2018, with 2019 demand growth expected to be higher at 1.4 million barrels a day.

The latest view on oil demand followed a report Thursday from the Organization of the Petroleum Exporting Countries, which revealed that the group‘s output fell by 751,000 barrels to 31.6 million barrels a day in December.

“Saudi Arabia got a head start on its supply cuts in December, ahead of the OPEC+ deal that went into effect this month,” said Lukman Otunuga, research analyst at FXTM. “With Russia also pledging to reduce production at a faster pace, efforts to support oil prices appear to be gathering traction, despite the record crude output out of the U.S.

“Set against a slower economic growth backdrop for 2019, oil's return to a bull market will be tested should global demand falter,” he said in a daily note.

On Wednesday, the Energy Information Administration reported a bigger-than-expected fall in crude inventories of 2.7 million barrels for the week ended Jan. 11, but U.S. crude production climbed to a weekly record 11.9 million barrels a day.

Across other energy contracts, February gasoline RBG9, +1.28%  added 1.6% to $1.453 a gallon, with prices up 3.7% for the week, while February heating oil HOG9, +1.55%  added 1.7% to $1.916 a gallon, for a weekly rise of 1.9%.

February natural gas NGG19, +0.29% moved up by the close, tacking on 2% to $3.482 per million British thermal units, ending about 12% higher for the week. The EIA reported Thursday that U.S. supplies of natural gas fell by 81 billion cubic feet for the week ended Jan. 11.

— Mark DeCambre contributed to this article



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Reporting by Myra P. Saefong from MarketWatch.

01 18 2019 20:24 GMT

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