Oil lifted as U.S. and China prepare to resume trade talks

Oil lifted as U.S. and China prepare to resume trade talks

Federal Reserve is expected to deliver rate cut on Wednesday

Oil futures ended higher Monday, with analysts tying support to the planned resumption of trade talks between the U.S. and China as well as expectations the Federal Reserve will deliver a rate cut when it concludes its policy meeting later this week.

West Texas Intermediate crude for September delivery CLU19, +0.58% on the New York Mercantile Exchange rose 67 cents, or 1.2%, to close at $56.87 a barrel, while October Brent crude BRNV19, +0.57%, the global benchmark, rose 15 cents, or 0.2%, to $63.62 a barrel on the ICE Europe exchange.

Last week, both U.S. benchmark WTI and Brent saw weekly rises of around 1.5%.

Oil has struggled to rally convincingly despite a string of six weekly declines in U.S. inventories and rising geopolitical tensions between Iran and other countries, notably the U.S. and Britain in the Strait of Hormuz, a key chokepoint for global oil transport, with around a third of global seaborne oil trade passing through the waterway. Washington’s decision last May to pull out of a 2015 Iran nuclear deal set the stage for increased animosities in the region. On Monday, the U.K. sent a warship to escort its vessels in the area and warned Tehran that it must release a British-flagged vessel seized this month.

Analysts at Macquarie Capital, in a Monday note, said the bullish trend in U.S. crude inventories, which fell 10 million barrels last week, remains supportive for the short-term outlook, but they expressed worry about longer term prospects against a backdrop of diminishing economic optimism and ample global supply.

“We believe the window for upward price movement is rapidly closing, and we are lowering our conviction in tandem,” they wrote. “While we maintain our positive outlook on oil through September, or $70 [a barrel] Brent, we gross down long exposure.”

Meanwhile, the Federal Reserve’s policy decision, which is expected to deliver a quarter-point interest-rate cut on Wednesday, also could be a key inflection point for global markets, as central banks attempt to curtail a global slowdown that could impinge upon energy consumption.

“Global economic growth prospects remain fragile, so energy traders will closely await updates on both the trade front and Fed policy,” wrote Edward Moya, senior market analyst at Oanda, in a daily research note.

Formal negotiations between China and the U.S., which were set to get under way on Tuesday in Shanghai, also were being watched for signs of progress, which could help support global economic expansion. Tensions between the superpowers have underpinned concerns about crude appetite.

President Donald Trump has suggested that Beijing may avoid inking a tariff agreement with the U.S. until it determines the outcome of the 2020 presidential election. “I think that China will probably say, ‘let’s wait,’” he told reporters in the Oval Office. “When I win, like almost immediately, they’re all going to sign deals.”

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will lead the Sino-American tariff talks.

In other energy trade, September gasoline RBU19, +0.59% fell 0.71 cent, or 0.4%, to $1.8153 a gallon, while September heating oil HOU19, +0.38% rose 0.7 cent, or 0.4%, to end at $1.9203 a gallon.

September natural-gas futures NGU19, -0.09% fell 1.6% to $2.116 per million British thermal units.

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