Energy

Oil jumps 1% as trade deal progress spurs demand optimism

A drilling crew secures a stand of drill pipe into the mouse hole on a drilling rig near Midland, Texas February 12, 2019.
Nick Oxford | Reuters

Oil rose more than 1% on Thursday, as progress on another major trade deal fed optimism that energy demand will grow in 2020.

The U.S. Senate approved a revamp of the U.S.-Mexico-Canada Free Trade Agreement a day after the signing of the Phase 1 trade deal between U.S and China.

Brent crude was up 95 cents to $64.95 a barrel, and U.S. West Texas Intermediate crude surged 1.2%, or 71 cents, to settle at $58.52 per barrel.

The U.S. Senate on Thursday approved a revamp of the 26-year-old North American Free Trade Agreement. A day earlier, U.S. and Chinese leaders signed the Phase 1 trade deal that calls for the world's largest importer to buy $50 billion more of U.S. oil, liquefied natural gas and other energy products over two years.

However, analysts warned that China might struggle to meet the target and said oil prices could be volatile until more details emerge.

Trade sources said sharply higher Chinese purchases of U.S. energy products as part of the China-U.S. trade deal will shake up global crude oil trade flows if American supplies squeeze rival crudes out of the top oil import market.

"We had the U.S-China trade deal yesterday - signed and sealed. And now you got the U.S. -Mexico trade going through the senate. So I think the optimism surrounding the demand is rising exponentially right now," said Phil Flynn, an analyst at Price Futures Group in Chicago.

Flynn also cited a report from the Federal Reserve Bank of Philadelphia showing manufacturing activity in the U.S. Mid-Atlantic region rebounded in January to its highest level in eight months.

Price gains were capped earlier as the International Energy Agency (IEA) said it expected oil production to outpace demand for crude from the Organization of the Petroleum Exporting Countries (OPEC), even if members comply fully with a pact with Russia and other non-OPEC allies to curb output.. The report also said surging oil production from non-OPEC countries led by the United States along with abundant global stocks will help the market weather political shocks such as the U.S.-Iran stand-off.

UBS said in a note "provided Middle East tensions do not intensify and cause production disruptions, Brent should decline toward the bottom of a $6065 per barrel trading range in 1H20 before recovering to the top of it in the second half of the year".