Crude oil takes a breather as USA inventories rise

An Oil Price Rally Is Likely

Oil prices have scored gains of almost five per cent in the last two sessions, recovering much of what they lost last week when the U.S.'s decision to slap China with tariffs on $50 billion worth of gold sent crude on a dive to a two-week low.

Oil prices extended gains on Tuesday, as the trade spat between the U.S. and China showed signs of getting settled without causing any harm to the global economy.

US West Texas Intermediate (WTI) crude futures were at $62.34 a barrel at 3.55am GMT, up 28c, or 0.45%, from their previous settlement.

Oil prices rallied more than two per cent on Monday after declining by about the same amount on Friday.

But future US involvement in the Middle East could interrupt crude supply chains and make it hard for producers to ship overseas, sparking a bid for oil on Tuesday.

Investors looked forward to data on USA crude inventories and Organisation of Petroleum Exporting Countries (OPEC) production levels.

Concerns of a prolonged trade dispute between the world's two biggest economies and uncertainty over the supply and demand balance of global oil markets have resulted in volatile yet range-bound recent trading.

The American Petroleum Institute (API) is set to release oil inventory figures later this day, while the Energy Information Administration is due to present on Wednesday.

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"If China was to impose counter tariffs on USA crude, it would become quickly very heavy for the US supply and demand picture, resulting in US crude oil price pressure that would have a negative impact on global oil prices", according to Petromatrix.

There are also concerns that the United States could renew sanctions against Iran, a major Middle East oil producer.

Still, growing United States crude stockpile, which has risen since mid-2016 to 10.46 million bpd, have become a hindrance to OPEC's plan to contain the supply glut and bolster prices.

Oil markets have been supported by healthy demand and supply cuts led by the Organization of the Petroleum Exporting Countries.

The U.S. late past year overtook Saudi Arabia as the world's second-biggest crude producer.

JPMorgan said it expects Brent and WTI prices to average $69.50 and $65.20 per barrel in 2018, respectively, while it forecasts $64 per barrel for Brent and $58.50 per barrel for WTI in 2019.

That will likely make the United States the world's biggest oil producer by 2019, surpassing Russian Federation which now pumps out nearly 11 million bpd.

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