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January 8, 2019 11:00 AM, EST

Oil Extends Longest Rally in 17 Months as Supplies Seen Tighter

Oil Rig Taylor Weidman/Bloomberg News

Oil extended its longest run of daily gains in 17 months on renewed efforts by the U.S. and China to reach a trade deal, and expectations the market will be tightened by OPEC’s output cuts.

Futures in New York increased as much as 1.9% following six days of gains, the longest streak of increases since July 2017. Trade talks with China are “going very well,” President Donald Trump said in a tweet, even as his Chinese counterpart, Xi Jinping, dispatched one of his top aides to negotiations in Beijing. Meanwhile, U.S. crude inventories were estimated to have declined.

Crude is seeing a tentative recovery after fears of oversupply and weakening global growth drove prices last year to their worst annual slump since 2015. Investor confidence is growing as the Organization of Petroleum Exporting Countries and it allies start their pledged production cuts this month, led by Saudi Arabia. The U.S. Federal Reserve signaling a hold in interest-rate hikes that had spurred risk aversion and volatility across global financial markets is also boosting oil.

“Saudi Arabia will continue to be the decisive factor for the markets this year, just as they were last year,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “They can be very convincing when they choose to be. And so we see the potential for Brent crude to go to $70 a barrel over the course of the year.”

Oil Graph

Bloomberg News

The America-China trade talks are showing signs of progress. The U.S. administration on Jan. 7 expressed optimism it can reach a “reasonable” trade deal, and Trump has given Trade Representative Robert Lighthizer until March 1 to negotiate an accord. The current round of talks are scheduled to continue through Jan. 8, with more senior-level discussions likely later this month.

“There’s a confluence of factors helping — a big driver is progress in trade talks and hopes that global growth will be supported,” said Stephen Innes, head of trading for Asia Pacific at Oanda Corp. “Fed’s easier stance and OPEC’s commitment to cut production, as well as expectations that inventories should drop, are lending a hand to this positive investor sentiment.”

American crude stockpiles probably declined by 1.75 million barrels last week, according to the median estimate in a Bloomberg survey of analysts ahead of government data on Jan. 9. Nationwide inventories are near their lowest level in almost two months.