Oil rises one per cent on US, China trade talk optimism

Specialist Thomas McArdle left and trader Robert Charmak work on the floor of the New York Stock Exchange Wednesday Jan. 9 2019. Stocks are opening higher on Wall Street putting the market on track for a fourth gain in a row

Oil headed for its biggest weekly gain in over 2 years on hopes that OPEC will manage to shrink a glut and trade tensions between the USA and China will ease.

Optimism that the trade standoff would be resolved also lifted oil prices.

Futures in NY have advanced 10 percent this week, as Saudi Arabia pledged that a producer coalition it's leading will keep the market in balance.

"These risks seem more under control", said Kristina Hooper, chief global market strategist at Invesco in NY.

The surge in USA production runs counter to efforts led by the Organization of the Petroleum Exporting Countries to cut supply and rein in an emerging glut.

Optimism regarding a trade deal boosted U.S. Treasury yields to their highest this year, while the U.S. dollar extended its losses after minutes from a December 18-19 Federal Reserve policy meeting showed that many Fed policymakers said the central bank could be patient on future rate hikes.

On Tuesday, crude oil prices were slightly down at the start of trading, despite reports that Saudi Arabia cut its crude exports to help boost prices.

Crude oil prices rallied sharply over the last nine sessions on news about production cuts by OPEC and some non-OPEC members and amid optimism about the USA and China striking a trade deal before the expiry of a 90-day truce agreed upon in early December by the Presidents of the US and China. U.S. West Texas Intermediate (WTI) crude CLc1 futures rose $2.58 to settle at $52.36 a barrel, a 5.2 percent gain. Hong Kong's Hang Seng rose 0.6 percent to 26,667.27. It added another 23 cents to $52.59 per barrel on Thursday.

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The pan-European STOXX 600 benchmark closed up 0.53 percent, its highest close in almost four weeks. Brent, the global benchmark, finished the day up 22% since bottoming out.

OPEC and its oil-producing allies, including Russian Federation, reached an agreement to slash oil production by a total of 1.2 million barrels per day in December, in a bid to shore up falling prices due to fears of oversupply.

"However, investors are becoming increasingly confident that OPEC+ production cuts will balance the market", ANZ said.

Treasury Secretary Steven Mnuchin announced that Chinese Vice Premier Liu He will "most likely" visit Washington on January 30 and 31 to meet with his U.S. counterparts, including U.S. Trade Representative Robert Lighthizer, reports Reuters.

ANALYST'S TAKE: "The sentiment pendulum has swung from USA recession fears to optimism for a dovish Fed and positive US-China trade talks". China's Ministry of Commerce said there were "detailed exchanges" and both sides would "maintain close contact", without offering specifics.

Iranian Oil Minister Bijan Zanganeh said USA sanctions against his country were "fully illegal" and Tehran would not comply with them.

Meanwhile, dovish commentary by Federal Reserve Chairman Jerome Powell and his deputy Richard Clarida has added to positive investor sentiment.

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