Oil rides rebound in global risk assets

TOKYO: Oil held its biggest gain in two years, after being swept up in a rebound across risk assets spurred by optimism about the global economy.

Futures in New York were little changed after surging 8.7% in the previous session.

The S&P 500 Index equity gauge rebounded on Wednesday from the brink of a bear market on signs of robust consumer spending, easing concern about the tenure of the Federal Reserve chief and progress on US-China trade talks.

Meanwhile, expectations for declining American crude inventories also supported prices.

Still, the rally represents only limited relief for oil, which is down almost 40% from a four-year high in October. Investors remain wary about the prospect of a supply glut, stoked by fears that output cuts pledged by Opec and its allies won’t be enough to counter booming American shale output. There are also lingering concerns that a trade war between the US and China - the world’s two biggest economies - could curb energy demand.

“Hopes of US-China trade progress impacted equity and crude markets” even though it’s a small step in the negotiation process, Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp, said by phone in Tokyo. “As trading volumes are thin, crude prices could continue to be volatile and react to every little thing through early January.”

West Texas Intermediate for February delivery traded 49 cents lower to US$45.73 a barrel on the New York Mercantile Exchange at 4:26 pm in Tokyo. The contract advanced US$3.69 to US$46.22 on Wednesday. Total volume traded was about 31% above the 100day average.

Brent for February settlement dropped 65 cents to US$53.82 a barrel on London’s ICE Futures Europe exchange. The contract rose US$4 to US$54.47 on Wednesday. The global benchmark crude traded at an US$8.11 premium to WTI. Oil jumped as all three major US stock indexes gained at least 4% on Wednesday, a feat last achieved in 2011. President Donald Trump a day earlier had said an equity rout that pulled the S&P 500 Index down 19.8% from a record offered a “tremendous opportunity to buy.”

Additionally, a White House official assured investors that Fed Chairman Jerome Powell won’t get fired, an action Bloomberg News reported over the weekend that Trump had discussed.

Signs that US and China may be making progress to resolve their trade conflict also supported the rally in risk assets. A delegation led by Deputy US Trade Representative Jeffrey Gerrish is said to plan traveling to China in the week of Jan. 7 for the first face-to-face discussion since the two countries agreed to a truce. That follows China’s announcement earlier this week on another round of tariff cuts. Meanwhile, US crude inventories probably fell three million barrels last week, according to a Bloomberg survey of analysts.

If Energy Information Administration data due today confirms that, it will be a fourth consecutive weekly decline in US stockpiles.