Oil Rises 3% on Trade Talks, Fed Cut Hopes

By Barani Krishnan

Investing.com – Crude prices rose almost 4% Tuesday as oil bulls got a reprieve from someone who hasn’t been their friend for some time -- President Donald Trump -- who said he’ll resume trade talks with Chinese leader Xi Jinping at next week’s G-20.

The possibility of a deal between the two economic superpowers that could halt, or even end, more than a year of tit-for-tat tariffs and other hostilities sent the S&P 500 to near-record highs and gave oil its best one-day gain in more than five months. Expectations that the Federal Reserve was working on a rate cut to safeguard the U.S. economy from recession also bolstered sentiment.

U.S. West Texas Intermediate crude settled up $1.75, or 3.4%, at $53.68 per barrel, notching its largest one-day gain since Jan. 9. The session high for WTI was $54.51.

U.K. Brent oil rose $1.07, or 1.8%, to $62.01, after a session peak at $62.81.

Trump tweeted that he “had a very good telephone conversation with President Xi of China.”.

“We will be having an extended meeting next week at the G-20 in Japan,” he added. “Our respective teams will begin talks prior to our meeting.”

The U.S.-China trade war has been one of the biggest negatives for oil this year, threatening the global economy with recession and reduced demand for energy. WTI was up as much as 46% for the year on April 23. That gain has been cut by two thirds to about 14.4%.

Trump has warned that he would add tariffs to all imports from China if the country’s leader didn’t meet him at the G-20, but he also said he really liked Beijing and wanted to fix all issues between the two sides.

The president’s first positive remarks on the trade talks in weeks was a boon for oil bulls. Trump is well known for his dislike for high oil prices and how these could push gasoline prices up at U.S. pumps and anger voters as he prepares for his reelection campaign. His tweets and interviews often have the effect of dampening oil prices rather than making them rise.

Oil prices received additional support from European Central Bank President Mario Draghi's vow to cut interest rates if necessary to support the European economy and reports that Saudi Arabia has been putting new pressure on fellow OPEC members and allies to extend their agreement on output restraint.

Tuesday’s rally came as oil bulls bet that the U.S. Energy Information Administration’s weekly supply-demand dataset due on Wednesday could show the first strong drawdowns in crude since early May.

U.S. crude inventories likely fell by 2.03 million barrels during the week ended June 14, offsetting almost all of the 2.21 million-barrel build seen in the previous week, according to analysts’ projections tracked by Investing.com.

Gasoline stockpiles were expected to have risen by 1.07 million barrels, larger than the previous week’s build of 764,000 barrels. Inventories of distillates, which include diesel, jet fuel and heating oil, are forecast to have grown by 1.17 million barrels versus the previous week’s drop of 1 million barrels.

The American Petroleum Institute will issue a snapshot at 4:30 PM ET (20:30 GMT) on what the EIA’s numbers for the week ending June 14 are likely to be.

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