Oil rises for third day on US-China trade optimism, OPEC supply cuts

Oil rose for a third day on Thursday, with Brent crude reaching its highest so far this year, as financial markets drew support from investor optimism that the United States and China could resolve their trade dispute.

Crude futures briefly gave up their gains as the oil market followed U.S. stocks lower after data showed the biggest drop in retail sales in a decade.

Brent crude futures were up 78 cents, or 1.2 percent, at $64.39 a barrel around 12:50 p.m. ET, down from a session high of $64.81, their highest intraday level in nearly three months.

U.S. crude futures rose 47 cents to $54.37 a barrel, after earlier topping out at $54.68, about $1 shy of its 2019 high.

The price of crude has risen 20 percent this year, driven primarily by the prospect of a decline in oil supply from OPEC and other top exporters such as Russia.

"This rally that we're seeing over the last two to three days is completely justified when you put the predicted OPEC production cuts into your global oil supply and demand equation," Tamas Varga of PVM Oil Associates said.

OPEC and allies such as Russia and Oman have agreed to cut crude output by a joint 1.2 million barrels per day, 800,000 bpd of which will come from OPEC.

Thanks to healthy oil demand growth and lower OPEC+ production ... we see the market tightening further over the coming months," UBS analyst Giovanni Staunovo said.

"As such, we continue to expect Brent oil prices will move up to $70-80 a barrel over three to six months."

Adding to the positive backdrop was data showing a surprise increase in China's exports in January, as well as a sharp rise in imports of crude oil ahead of the Lunar New Year holidays in early February.

European stock markets rallied following a flurry of upbeat earnings reports and after U.S. President Donald Trump said talks between Washington and Beijing over trade were going "very well."

This week's positive tone in oil futures, however, has masked a dislocation in the physical markets.

The steep rise in availability of U.S. shale oil is leading not only to a build in domestic inventories of crude, but also in refined products.

The U.S. Energy Information Administration said on Wednesday U.S. crude stocks rose to their highest since November 2017 as refiners cut runs to the lowest since October 2017 to combat tumbling margins, particularly for gasoline.

Prices for physical barrels of light, sweet crude that yield large quantities of gasoline have come under pressure. Heavier, sour grades that yield higher-value middle distillates such as diesel, like Russian Urals, have benefited from OPEC's output cuts and U.S. sanctions on competing grades such as Iran's.

Crude inventories rose for a fourth week in a row, by 3.6 million barrels, compared with forecasts for a gain of 2.7 million barrels. Stocks of gasoline increased by 408,000 barrels to a near-record 258.3 million.

— CNBC's Tom DiChristopher contributed to this report.

SOURCE: https://www.cnbc.com/2019/02/14/oil-markets-beijing-washington-trade-talks-china-data-in-focus.html