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NYMEX crude settles above $60/b on US-China trade agreement

Highlights

Deal encourages bulls, but questions remain

Traders await status of oil, LNG tariffs

New York — Crude futures climbed Friday following news the US and China had agreed to a trade deal.

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NYMEX front-month crude settled 89 cents higher at $60.07/b, breaking above $60/b for the first time since September 16, when crude rallied after an attack on Saudi Arabian oil infrastructure. ICE front-month Brent settled at $65.22/b, up $1.02.

In refined products, NYMEX front-month RBOB settled 3.49 cents higher at $1.6632/gal, and front-month ULSD settled 3.56 cents higher at $1.9864/gal.

Under the terms of the deal, the US will no longer impose additional tariffs on Chinese goods starting December 15.

"We have agreed to a very large Phase One Deal with China," said US President Donald Trump on Twitter. "The Penalty Tariffs set for December 15th will not be charged because of the fact that we made the deal. We will begin negotiations on the Phase Two Deal immediately, rather than waiting until after the 2020 election."

However, a 25% tariff will remain in pace on $250 billion of Chinese goods, while 7.5% tariffs are in place for another $120 billion of goods, according to media reports.

The news was supportive, considering the impact the tariffs were expected to have on global demand growth heading into 2020.

Still, some questions remained unanswered.

"There's no meat in the announcement," said OANDA senior analyst Edward Moya.

For instance, China had imposed a 5% tariff on US crude imports in September, the lifting of which would likely shift trade flows.

Also, US LNG export developers have struggled to secure new offtake contracts since the trade spat began because of the 25% import tariff on US LNG that China imposed in retaliation for US tariffs. No spot cargoes from the US have been delivered to China since March.

And risks remain, as the US and China are not expected to sign phase one of the deal until January, and as the threat of tariffs remain in place during the negotiations of phase two.

"The trade war is not going anywhere anytime soon," Moya said.

CHINESE GROWTH

Chinese economic growth will be key to global GDP, and, thus, oil demand, growth in 2020.

"The key driver for 2020 performance hinges on China and India, where China will account for 36% of global growth and India will account for another 17%," S&P Global Platts Analytics said in a report.

Platts Analytics expects China's GDP growth to come in a 5.8% in 2020, down from 6.2% in 2019. However, global GDP is expected to rise to 3.12% in 2020 from 2.83% in 2019.

Global oil demand is expected to grow by 1.26 million b/d in 2020, up from 940,000 b/d in 2019, according to Analytics.

Downside risks remain on the supply front.

The International Energy Agency reported Thursday the first quarter of 2020 could see rising global oil stocks despite OPEC+ efforts to curb production levels.

OPEC, Russia and its allies agreed earlier this month to deepen their production cuts to the tune of 1.7 million b/d, up from 1.2 million b/d, with Saudi Arabia offering an extra 400,000 b/d in voluntary cuts starting January. The IEA noted the cuts on dependent on producers, such as Iraq and Nigeria, "whose compliance so far has been less rigorous."

"The market appears once again to be deaf in one ear and is ignoring the fact that the development of supply will remain the key factor in the medium term," Commerzbank analysts said.

-- Jeff Mower, jeff.mower@spglobal.com

-- Janet McGurty, janet.mcgurty@spglobal.com

-- Edited by Jim Levesque, newsdesk@spglobal.com