Oil holds near eight-week high on U.S.-China trade deal optimism

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Oil held near the highest close in eight weeks on signs of progress in the prolonged U.S.-China trade war, which has weighed on the outlook for fuel demand.

Futures fell 0.1% near $58/bbl in New York after closing at the highest level since Sept. 23 on Friday. American and Chinese trade negotiators held “constructive discussions” in a phone call on Saturday to address each side’s core concerns surrounding a phase one deal. Oil short-sellers slashed their bearish positions on West Texas Intermediate by 41% in the week ended Nov. 12 on prospects for a truce in the trade war.

 “At this stage we do not know how successful the negotiations of the ‘phase one’ will be,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London. “For the time being risky assets look encouraging more on perceptions than facts. The global oil supply-demand balance needs to tighten.”

Crude has increased since early October as Washington and Beijing moved closer to resolving their trade conflict. Still, the International Energy Agency predicts the market is likely to remain “calm” next year as soaring production outside OPEC and high inventories keep consumers comfortably supplied. That could worry Saudi Arabia after it set a valuation target for state giant Aramco’s initial public offering well below Crown Prince Mohammed bin Salman’s goal of $2 trillion.

WTI for December delivery fell $0.03 to $57.69/bbl on the New York Mercantile Exchange as of 10:33 a.m. in London. The contract added $0.95 to close at $57.72 on Friday for a second weekly gain.

Brent for January settlement was little changed at $63.30/bbl on the London-based ICE Futures Europe Exchange, after increasing $1.02 on Friday. The global benchmark crude traded at a $5.51 premium to WTI for the same month.

The trade call was held at the request of U.S. negotiators, and the two sides agreed to remain in close communication, the Chinese Commerce Ministry said in a statement. The two sides were close to concluding a pact about six months ago, only for America to claim that China backed away from verbal commitments when the time came to sign the deal.

Saudi Arabia will sell just 1.5% of Aramco’s shares and set a valuation target of $1.6 trillion to $1.71 trillion for its IPO. The company canceled the London leg of its roadshow, scheduled for Wednesday, according to people familiar with the situation, after earlier deciding not to market the offering in the U.S., Canada or Japan. The deal will now mainly rely on rich Saudi families and other local investors.