Oil starts higher on trade optimism

Oil prices kicked off the New Year higher yesterday as warming trade relations between the US and China eased demand concerns while rising tensions in the Middle East fueled worries about supply.

Global benchmark Brent crude futures LCOc1 rose 35 cents, or 0.5 per cent to 66.35 a barrel by 0738 GMT, while US West Texas Intermediate (WTI) crude CLc1 was up 25 cents, or 0.4 per cent, at Sh6,200 ($61.31) per barrel.

Oil markets were closed on Wednesday for New Year’s Day.

Both benchmarks ended higher in 2019, posting their biggest annual gains since 2016, buoyed at the end of the year by a thaw in the prolonged trade dispute between the US and China - the world’s two largest economies - and a deeper output cut pledged by the Organisation of Petroleum Exporting Countries (Opec) and its allies.

“Oil remains supported by the back-burner trade truce and the uptick in political unrest in Iraq,” said Stephen Innes, chief Asia market strategist at AxiTrader.

The US military carried out airstrikes against Iran-backed Katib Hezbollah militia group over the weekend.

Angry at the airstrikes, protesters stormed the US Embassy in Baghdad on Wednesday, although they withdrew after the United States deployed extra troops.

In 2020, Brent is forecast to average $63.07 a barrel, up from December’s estimate of Sh6300 ($62.50), while WTI is forecast to average Sh5800 ($57.70) a barrel.

This is up from December’s estimate of Sh5,750 ($57.30), as the Opec-led supply cuts and the expectations of a US-China trade deal boosted analysts’ views on the prospects for the year, a Reuters poll showed.

US President Donald Trump said on Tuesday the US-China Phase 1 trade deal would be signed on January 15.

January also marks the start of the deeper output cuts by Opec and its partners, including Russia.

Opec and its allies have agreed to cut a further 500,000 barrels per day (bpd) from January 1, on top of their previous cut of 1.2 million bpd that started on January 1 a year ago.