Oil prices increased by around 5 percent on Monday after the United States and China agreed to a 90-day ceasefire in their trade war, and ahead of a meeting this week by the Organization of Petroleum Exporting Countries that is seen to result in a supply cut.
US West Texas Intermediate (WTI) crude futures were $53.41 per barrel, higher $2.48 per barrel, or 4.9 percent from their last close.
US crude prices were further pushed up by an announcement from Canada that Alberta province will force producers to slash output by 8.7 percent, or 325,000 barrels per day, to deal with a pipeline bottleneck that has led to crude stacking up in storage. Most of Alberta’s oil is exported to the United States.
Stephen Innes, who is the head of trading for Asia/Pacific at futures brokerage Oanda in Singapore, said Alberta’s decision was “an unprecedented step to ease a crisis in the Canadian energy industry.”
International Brent crude oil prices were higher $2.89 per barrel, or 4.9 percent, at $62.35 a barrel.
China and the United States agreed during a weekend meeting in Argentina of the Group of 20 (G20) leading economies not to impose additional trade tariffs for at least 90 days while the two sides hold talks to resolve existing conflicts.
The trade war between the world’s two biggest economies has weighed heavily on global trade, triggering concerns of an economic slowdown.
Crude oil has not been included in the list of hundreds of products each side has slapped with import tariffs but traders has said that the positive sentiment of the truce was also driving crude markets.
“The agreement to keep talking for 90 days during which tariffs are paused is an upside surprise,” said US bank Morgan Stanley in a note to clients on Monday. It added, however, that trade negotiations would be “bumpy.”
Overall, Morgan Stanley said that it saw a “slight upside in our 2019 growth outlook.”
Meanwhile, oil traders are keeping close tabs on a meeting by OPEC on December 6. At the meeting, the producer group, along with non-OPEC member Russia, is expected to announce cuts aimed at reining in a production overhang that has dragged down crude prices by around a third since the month of October.
Analysts expect a decrease of 1 million to 1.4 million barrels per day versus October levels, which were the highest by OPEC as a group since December of 2016.
Within OPEC, Qatar said on Monday that it would the producer cartel in January.
Qatar’s oil production is only around 600,000 barrels per day, while it ranks as the world’s top exporter of liquefied natural gas (LNG).
The small Middle Eastern country has also been at a head-on dispute with its much bigger neighbor Saudi Arabia, which is also the de facto leader of OPEC.
Outside of OPEC, Russian oil output was at 11.37 million barrels per day in November, down from a post-Soviet record of 11.41 million barrels per day that was hit in October, Energy Ministry data showed on Sunday. Russia has recently agreed on a supply cut deal with the oil cartel.
Meanwhile, oil producers in the United States continue to whip out record amounts of oil, with crude output at an unprecedented level of more than 11.5 million barrels per day.
With drilling activity still on high gear, most analysts expect US oil production to increase further in 2019.