Decisive UK election, trade deal pave the way for bullish oil prices

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Updated on Mar 11, 2020

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News of a phase one agreement boosted oil prices on Friday.
The deal between the US and China saw the two world’s largest economies make significant steps towards ending a 17-month long trade war.
UK’s Thursday election also brought to an end heightened uncertainty in the region’s key markets.

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Oil prices on Friday almost hit a new record high in three months following news of progressive Phase One trade agreement between China and the US as well as the just concluded UK Premiership election.

Beijing and Washington on Friday reached a “Phase One” deal that would see Washington cut down tariffs imposed on Chinese goods and in exchange, China would import farm inputs from the US.

The US West Texas Intermediate (WTI) crude gained 1.5% or $0.89 to settle at $60.07 while the global crude oil benchmark Brent futures jumped 1.6% to $65.22 per barrel.

According to a source familiar with the finer details of the Phase One agreement, Beijing has agreed to purchase about $32 billion worth of farm inputs from the US, on top of the initial quota, over the next two years. The US Trade Representative Robert Lighthizer said the deal would be effected in January next year.

But the Chinese government made no specific commitments regarding the volume of farm inputs they would be purchasing, something that analysts say would help ease the adverse effects of the trade war even further.

“It looks like President Donald Trump got his trade deal just in time for Christmas,” Phil Flynn, a Price Futures Group analyst said in Chicago. He added that while “markets jumped” after the trade news, it would be better if he saw more details from the Chinese side.

In the UK, the ruling Conservancy party candidate Boris Johnson took an early lead in an election that saw him retain the kingdom’s premiership position. Prime Minister Boris’s landslide win is expected to unclutter the cloud of uncertainty in the UK markets.

Bjarne Schieldrop, an analyst at SEB, said: “With a large win for Boris Johnson in the UK general election and an ‘almost there’ for the US-China trade war, it’s up we go for Brent crude. Oil demand growth will likely rebound along with a rebound in global manufacturing.”

The Organization of the Petroleum Exporting Countries (OPEC) and its associates including Russia, made a unanimous decision to cut crude supplies, making Brent rally 21% this year to date. The organisation settled on a 500,000 barrels per day supply cut until the end of the first quarter of 2020.