LONDON/TOKYO: Oil rose on Thursday as the long-awaited Phase 1 trade deal between the US and China brought some relief to markets, but the gains were capped after the International Energy Agency (IEA) said it expected oil production to outpace demand.

Brent was up 50 cents, or 0.8%, to US$64.50 a barrel by 1449 GMT, and West Texas Intermediate rose by 38 cents, or 0.7%, to US$58.19 a barrel.

Under the Phase 1 trade deal, China committed to buy over US$50 bil (RM203.18 bil) more of US oil, liquefied natural gas and other energy products over two years.

Trade sources and analysts said China could struggle to meet the target, and gains in oil are likely to be limited until more detail was available on how the commitments will be met.

“The interim deal has done the trick for the time being, but we can be sure that as talks about Phase 2 get underway we shall see more twist and turns,” said oil broker PVM’s Tamas Varga.

“To borrow the words from Ferdinand Foch, the Supreme Allied Commander during World War 1: ‘This is not peace. It is an armistice for a few months’.”

Oil prices are returning to range trading, analysts said, as the threat of conflict between Iran and the US recedes after they traded missile and drone attacks earlier this month.

In a reassuring note to the market, the IEA said surging oil production from non-OPEC countries along with abundant global stockpiles will help the market weather political shocks such as the US-Iran confrontation.

The IEA also said it expected production to outstrip demand for crude from the Organisation of the Petroleum Exporting Countries (OPEC), even if members comply fully with a pact with Russia and other non-OPEC allies to curb output.

UBS said in a note “provided Middle East tensions do not intensify and cause production disruptions, Brent should decline toward the bottom of a US$60–65 per barrel trading range in 1H20 before recovering to the top of it in the second half of the year.”

Also supporting prices was US official data that showed a much bigger-than-expected drop in crude oil inventories.

Inventories fell by 2.5 million barrels, compared with analyst expectations for a drop of 500,000 barrels, according to data from the Energy Information Administration. – Jan 16, 2020 Reuters

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