Oil falls as investors assess US-China trade truce
AdamSummary:
Oil dipped as the Trump-Xi deal was seen as a temporary truce, despite Fed support and a big U.S. inventory drawdown.
Oil prices eased on Thursday as investors assessed a potential truce in a trade spat between the United States and China, as President Donald Trump lowered tariffs on China after a meeting with President Xi Jinping in South Korea.
Brent crude futures fell 53 cents or 0.82% to $64.39 a barrel by 0908 GMT. U.S. West Texas Intermediate crude futures dropped by 46 cents or 0.76% to $60.02.
Trump agreed to reduce tariffs on China to 47% from 57% in a one-year deal in exchange for Beijing resuming U.S. soybean purchases, keeping rare earths exports flowing and cracking down on the illicit trade of fentanyl.
Investors see the announced agreement between China and the U.S. as more of a de-escalation of tension than a structural change in relationship, said PVM analyst Tamas Varga, who noted lower Brent prices appeared to go against robust drawdowns in U.S. oil inventories.
FED RATE CUT LIFTS ECONOMIC OUTLOOK
Also helping lift the economic outlook, the U.S. Federal Reserve lowered interest rates on Wednesday, in line with market expectations. However, it signalled that might be the last cut of the year as the ongoing government shutdown threatens data availability.
"The Fed's decision underscores a broader turn in its policy cycle – one that favours gradual reflation and support over restraint, providing a tailwind to commodities sensitive to economic activity," Rystad Energy's chief economist Claudio Galimberti said in a note.
The gains by Brent and WTI in the previous session also reflected a larger-than-expected drawdown in U.S. crude and fuel inventories.
Both benchmarks are, however, on track for declines of more than 3% in October, which would be their third consecutive month of losses following concerns around oversupply.
U.S. crude inventories dropped by 6.86 million barrels to 416 million barrels in the week ended October 24, the Energy Information Administration said, compared with analysts' expectations in a Reuters poll for a 211,000-barrel fall.
Another key focal point for investors is an OPEC+ meeting scheduled for November 2, where the alliance will likely announce another 137,000 barrels per day (bpd) supply hike for December.
Source: reuters
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