Oil Higher in Friday Trade

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent futures on the Intercontinental Exchange moved higher early Friday on investor optimism over the progress of U.S.--China trade talks after this week's meetings in Washington, further supported by growth in U.S. manufacturing in January.

Nymex March West Texas Intermediate futures were up $0.66 at $54.45 barrel (bbl) in midmorning trade, with ICE April Brent futures posting a $0.90 gain to $61.74 bbl. March ULSD futures edged 0.80 cents higher to $1.8854 gallon, and March RBOB futures gained 3.85 cents to near $1.4161 gallon.

Oil futures are supported by upbeat comments from both China and the United States on the progress of their trade talks after concluding two day of meetings on Thursday. U.S. President Donald Trump said "tremendous progress" was reached during the key round of trade negotiations, while Beijing hailed "frank, concrete and constructive discussions" following Vice Premier Liu He's visit to the White House.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are scheduled to travel to China in mid-February to continue the high level discussion. While also expressing optimism for an agreement to be reached between the two economic powers, Trump said a final deal will not occur until he meets with Chinese President Xi Jinping, which is expected to be scheduled later this month. China's foreign ministry spokesperson Geng Shuang told reporters Friday morning that both sides had a clear timeline and road map for next steps, adding that Xi was willing to maintain close contact with Trump during the final round of negotiations.

The United States is set to lift tariffs on $200 billion of Chinese imports from 10% to 25% on March 2, if the two countries do not reach an agreement by the March 1 deadline. Trump made it clear that there would be no postponement in raising the tariffs if a deal is not reached by the deadline.

China's Caixan Manufacturing Purchasing Manager's Index tumbled from 49.7 in December to a nearly three-year low in January at 48.3, with the overnight release showing China's manufacturing sector slid deeper into contraction to begin 2019.

The U.S.-China trade dispute continues to weigh heavily on China's manufacturing sector, with the slowdown in China adversely affecting other export-driven economies such as Europe's powerhouse, Germany. The final eurozone manufacturing PMI dropped to 50.5 in January, in line with the flash estimate, from 51.4 in December. The index has now fallen for six consecutive months to reach its lowest level since November 2014. Early this week, the initial reading for fourth quarter gross domestic product in the eurozone was a 1.2% year-on-year expansion, down from 1.7% in the third quarter, and at the lowest reading since November 2014. The European Central Bank said this week it stands ready to resume buying bonds to steady the slowing economy.

In contrast, the Institute of Supply Management's Manufacturing Index for the United States gained to 56.0% in January versus expectations it would slip to 54.0%.

University of Michigan's final Consumer Index for January was below expectations at 91.2, a 27-month low, albeit up from a preliminary reading of 90.7, pressured by the partial government shutdown. The index is down sharply from December's 98.3 reading.

Moving forward, investors will remain focused on economic and manufacturing data from major global economies and any signs of breakthrough in U.S.-China trade talks that rocked global markets for much of 2018.

Liubov Georges can be reached at liubov.georges@dtn.com