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Oil rises as US scales back tariffs, lifting demand outlooks

New York — Oil futures settled higher Tuesday as the market re-evaluated demand outlooks amid signs of a thaw in US-China trade tensions.

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NYMEX September WTI settled up $2.17 at $57.10/b, and ICE October Brent was $2.73 higher at $61.30/b at market close.

Oil prices moved sharply higher early on Tuesday after the US Trade Representative's office announced that it was removing several products from the list of goods subject to a 10% tariff scheduled to go into effect September 1 and delaying the tariffs on others until December 15. China's Ministry of Commerce announced Tuesday that China and the US would resume trade talks in two weeks.

US President Donald Trump announced on August 1 that the US would impose a 10% tariff on $300 billion worth of Chines goods on September 1, when trade talks between the two countries were scheduled to resume. While Trump had previously threatened a 25% tariff, the move was still seen by the market as a serious escalation of trade tensions and oil demand growth concerns have since weighed heavily on prices. Despite Tuesday's gains, front month WTI and Brent are still 2.5.% and 5.9% under their pre-announcement July 31 peak.

China responded to the tariff announcement by suspending purchases of US agricultural products and allowing the yuan to slide against the dollar, stoking fears the trade dispute could further escalate into a currency war.

"As usual, China said they were going to be buying 'big' from our great American Farmers. So far they have not done what they said. Maybe this will be different!" Trump tweeted Tuesday afternoon.

"The word that the Chinese are going to meet with the US in two weeks and the US will delay tariffs on certain products changes the entire narrative," Price Future Group senior market analyst Phil Flynn said. "The market came in today doomy and gloomy on the idea that a trade war would put us in recession, now they made progress on the other side. This is a potential game changer."

NYMEX September ULSD settled up 7.15 cents at $1.8773/gal and September RBOB was 7.12 cents higher at $1.7364/gal.

The products to be removed from the tariff list, which USTR did not immediately identify, were removed due to "health, safety, national security," and other factors. The products facing the delayed tariff include: cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing, USTR said.

"USTR intends to conduct an exclusion process for products subject to the additional tariff," the office said in a statement.

An outsized uptick in Brent futures widened the Brent/WTI spread 56 cents to $4.20/b, marking the first significant reversal of a narrowing trend that has brought in the spread from $7.37/b in late July.

-- Chris van Moessner, christopher.vanmoessner@spglobal.com

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com