Oil Ends Higher on US-China Talks

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures nearest to delivery and Intercontinental Exchange Brent futures moved higher in market-on-close trade on reports of progress in U.S.-China trade talks, while a downbeat global demand forecast limits the upside for oil prices.

Crude contracts settled modestly higher on Tuesday following late afternoon reports of U.S. trade negotiators traveling to China next week for face-to-face talks. White House economic advisor Larry Kudlow said, "as I read it, it looks like there will be trip to China," reigniting investors' hopes of a breakthrough in the months-long trade impasse between the world's two largest economies. Market participants sent oil prices lower in recent weeks on concern the lack of progress in U.S.-China trade negotiations would increasingly hurt economic growth and by extension fuel demand.

On Tuesday, International Monetary Fund (IMF) revised lower its growth forecast for the global economy by 0.1% for 2019 and 2020. IMF now expects global economic expansion to average 3.2% in the current year, citing outstanding trade and technology barriers. Downbeat IMF forecast follow bearish calls on fuel demand from Goldman Sachs, which cut its forecast for growth in oil consumption by 175,000 barrels per day (bpd) in 2019. U.S. investment bank said Monday slowing global economic activity in the first half of the year were among the factors leading to the reduction. Looking forward, market participants will pay close attention to manufacturing data from Eurozone to be released Wednesday followed by a rate decision from the European Central Bank on Thursday and annualized U.S. GDP reading for the second quarter at the end of the week.

Libya's largest oil field has returned to its full capacity rate of 290,000 bpd on Tuesday after a sabotage attack disrupted operations at a key pipeline, according to Reuters. Following the "unlawful closure" of a pipeline valve, the country's production plunged to 1 million bpd over the weekend—the lowest rate in five months. Libya remains a wildcard for oil markets, with competing militant groups continuing to fight for Libya's rich hydrocarbon resources since the country slid into chaos in 2011. The El-Sharara oilfield had never returned to a pre-civil war capacity of roughly 340,000 bpd.

Domestically, markets participants will get data on U.S. inventory levels from the American Petroleum Institute set for release at 4:30 p.m. ET, while official government data will be published 10:30 a.m. ET on Wednesday (7/24). Market participants mostly expect U.S. commercial crude inventories declined 4.4 million barrels (bbl) in the week ended July 19, but remain divided on gasoline inventories with some calling for a decline in stocks to have occurred while others expect a build. On average, analysts were looking for a decline of 1.13 million bbl in gasoline stockpiles for last week. Domestic distillate inventories are expected to have climbed 1.7 million bbl in the profiled week.

NYMEX September WTI futures settled $0.55 up at $56.77 bbl and ICE September Brent futures ended $0.57 higher at a $63.83 bbl settlement after trading in narrow ranges for most of the session. NYMEX August RBOB rallied 3.26 cents to settle at $1.8605 gallon, one-week high, while the August ULSD contract advanced 2.22 cents to settle at $1.9217 gallon.

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

(BAS)