Oil prices rose by more than 1 percent on Monday, lifted by optimism that talks could soon resolve the trade war between the United States and China, while supply cuts by major producers also supported the market.
Brent crude futures were at $57.77 per barrel at 0227 GMT, up 71 cents, or 1.2 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude oil futures were at $48.65 per barrel, up 69 cents, or 1.4 percent.
Financial markets were riding a relief rally on Monday on expectations that face-to-face trade negotiations between delegates from Washington and Beijing, due to start on Monday, would lead to an easing in tensions between the two biggest economies in the world.
The United States and Beijing have been locked in an escalating trade spat since early 2018, raising import tariffs on each other’s goods. The dispute has weighed on economic growth.
“The start of 2019 brings an even greater sense of downside risk around our global growth forecast…(and) the 3 percent global growth pace we have been anticipating for the next two quarters looks increasingly challenging,” U.S. bank J.P. Morgan said in a note late last week.
In a separate note, the bank said “bond and commodity markets appear to be pricing in on average close to a 60 percent chance of a U.S. recession over the coming year compared to a 40 percent chance by our economists and 27 percent chance by the consensus.”
Despite the likelihood of a slowdown, crude future prices were being supported by supply cuts started late last year by a group of producers around the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) as well as non-OPEC Russia.
“OPEC’s new production cuts have taken effect from the start of the year and market surveys of OPEC output show that major producers got started early,” said Emirates NBD bank in a note released on Sunday.
OPEC oil supply fell in December by 460,000 barrels per day (bpd), to 32.68 million bpd, a Reuters survey found last week, led by cuts from top exporter Saudi Arabia.
But not all factors are pointing to higher prices.
In the United States, crude oil production <C-OUT-T-EIA> stayed at a record 11.7 million barrels per day (bpd) in the last week of 2018, according to weekly data by the Energy Information Administration (EIA) released on Friday.
That makes the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.
Record output is also swelling U.S. fuel stockpiles.
Crude oil inventories <C-STK-T-EIA> rose by 7,000 barrels in the week ending Dec. 28, to 441.42 million barrels.
Distillate and gasoline stocks, however, rose by a whopping 9.5 million and 6.9 million barrels, to 119.9 million and 240 million barrels respectively, the EIA data showed.
“The U.S. supply glut remains a bearish concern,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.