WTI, Brent Spike 2% on US-China Deal

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange advanced to two-week high settlements on Friday, gaining on reports the United States and China reached a partial trade deal following two days of talks. Meanwhile a sabotage attack on an Iranian oil vessel off the coast of Saudi Arabia reignited concerns over supply security in the Middle East, triggering short covering.

Following two consecutive sessions of gains, NYMEX November West Texas Intermediate futures ended up $1.15 at $54.70 per barrel (bbl), while posting a 3.6% gain on the week. The ICE December Brent contract rallied $1.41 to $60.51 bbl, adding 3.7% in value from last Friday.

NYMEX November ULSD futures were up 3.68 cents to settle at $1.9576 gallon, up 3.3% on the week. The November RBOB contract gained 1.55 cents to a $1.6388 gallon settlement, while advancing 4.2% on the week. U.S. dollar declined 0.4% in Friday afternoon index trading to a 98.005 fresh three-week low, also boosting the U.S. crude contract.

U.S. President Donald Trump announced Friday a partial trade agreement with China, marking the first breakthrough in a 15-month long trade conflict that was a drag on global economic growth, denting fuel demand. The provisions of the trade deal include agreement on preventing currency manipulation and forced technology transfer, forestalling a planned tariff increase on Oct. 15.

The breaking news of the agreement sent U.S. equities along with oil futures sharply higher, as markets priced in an improved economic outlook. Dow Jones Industrial rose more than 300 points, while S&P 500 gained 1.1% and the NASDAQ Composite jumped 1.3%.

Oil futures were already advancing early session after an alleged attack on Iranian oil tanker off the coast of Saudi Arabia added a geopolitical risk premium in prices. The latest reports indicate that the National Iranian Oil Company said there was no indication that Saudi Arabia was behind Friday's incident and stressed that further examination is needed to identify perpetrators. No group or government has claimed responsibility for the attack, with the damaged oil tanker now back in Iranian waters.

This latest incident in the Middle East highlights the increased tensions in the waters surrounding some of the largest oil producing countries in the Middle East. Iran has been recently implicated in several such incidents along the eastern coast of Saudi Arabia, in the Persian Gulf, and in the most important oil-shipping lane in the world, the Strait of Hormuz.

Adding to the bullishness, International Energy Agency expects global oil demand to grow at a faster rate for the remainder of the year, having already picked up pace in July and August. In their monthly Oil Market Report released this morning, the agency did revise annual demand growth for 2020 lower, projecting a supply surplus early next year.

A lower oil price, down 30% against year ago, is seen spurring oil consumption, while slowing projected economic growth for 2020 prompted the downward adjustment in world oil consumption for next year. IEA continues to forecast strong growth for oil producers not part of the Organization of the Petroleum Exporting Countries, with non-OPEC output seen up 1.8 million barrels per day (bpd) annually to 64.8 million bpd this year. The growth rate quickens in 2020 to 2.2 million bpd, with the expansion driven by the United States, Brazil and Norway.

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

(BAS)