Oil gains after US-Mexico trade deal

Tuesday, 28 August, 2018 - 06:43

Oil prices have edged up, supported by a strengthening equities market and news that the United States and Mexico agreed to overhaul the North American Free Trade Agreement (NAFTA).

Brent crude rose 39 cents, or 0.5 per cent, to settle at $US76.21 a barrel. US West Texas Intermediate (WTI) crude futures gained 15 cents, or 0.2 per cent, to close at $US68.87 a barrel.

Last week, WTI posted a 4.3 per cent weekly gain while Brent marked a 5.6 per cent weekly increase.

Traders said prices pulled back after market intelligence firm Genscape reported that inventories at the Cushing, Oklahoma, delivery hub for WTI rose by about 764,800 barrels from August 21 through Friday.

The United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA), putting pressure on Canada to agree to new terms on auto trade and dispute settlement rules to remain part of the three-nation pact.

"The trade deal with Mexico is definitely a supportive issue," said Phil Flynn, analyst at Price Futures Group in Chicago.

"Opening those trade barriers up increases growth and increases demand expectations for oil."

Concerns that the countries would fail to strike a bilateral trade agreement had weighed on the oil market on Friday. Crude backed off from that session's highs on fears that economic growth and demand would be stifled as the countries stumbled on negotiating roadblocks.

US stock markets rallied, with the benchmark S&P 500 and the Nasdaq hitting all-time highs, pulling oil prices up. The equities market and oil futures market at times track closely with one another.

Members of an OPEC and non-OPEC monitoring committee found producers cut their July output by 9 per cent more than called for in their output reduction pact, two sources familiar with the matter said.

This compared with a compliance level of 120 per cent for June and 147 per cent for May, meaning participants have been steadily increasing production.

The Organisation of the Petroleum Exporting Countries and other producers led by Russia agreed in June to return to 100 per cent compliance with oil output cuts that began in January 2017.

This follows months of underproduction by Venezuela and other producers which cut output by 160 per cent of the agreed target.

The committee groups representatives from Saudi Arabia, Russia, the United Arab Emirates, Kuwait, Algeria, Venezuela and Oman.

Prices have been buoyed in recent weeks by the view that the oil market will tighten when US sanctions targeting OPEC member Iran's oil exports kick in November.

"While the Iranian sanctions issue certainly isn't new news, suggestions out of the White House that waivers will be restricted appeared to augment last week's price gains," said Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

In a phone call to French President Emmanuel Macron, Iranian President Hassan Rouhani said that Iran wanted the Europeans to give guarantees on banking channels and oil sales as well as in the field of insurance and transportation, according to the state-run Iranian news agency IRNA.