Oil Prices Hit 7-Week High on US-China Trade Optimism and Tightening of Supplies

Oil prices rose to nearly their highest level in two months on Wednesday. The rally followed news that U.S. President Donald Trump had confirmed that an agreement had been reached with China on a trade deal, awaiting the sign-off by leaders of the two countries.

The development raised hopes of reducing tensions between the world's two biggest economies, lifting expectations for increased oil demand.

Brent crude rose $1.15, or 1.7%, to $68.02 a barrel at 12:49 GMT. U.S. West Texas Intermediate (WTI) climbed $1.31, or 2%, to $66.29, its highest since early April.

Market analysts say the trade deal helps cap a key downside risk to oil markets, at least for now. But there remains some cloudiness, since it is unclear how the deal will affect overall economic growth and energy use over the long term.

Meanwhile, the complexities were increased by geopolitical tensions with Iran. President Trump said he was skeptical that Iran would agree to stop enriching uranium as part of a nuclear deal. Iran has, in turn, warned of military retaliation should talks fail. Those tensions are also helping to keep Iranian oil supplies constrained by American sanctions.

Meantime, OPEC+ is poised to raise output by 411,000 barrels a day next month. The reduction is part of their strategy to gradually release output cuts for a fourth consecutive month. Still, internal demand in oil-exporting countries, including Saudi Arabia, may capture a lot of the increased supply, providing some floor to global prices.

That echoed some economic signals in the United States. Consumer inflation grew less than expected in May, which supported speculation that the Federal Reserve could cut interest rates by September. The reduced interest rate discourages saving and encourages borrowing—both things that might accelerate economic activity and lift energy consumption.

Oil inventory stats in the U.S. are awaited as one of the key near-term drivers. Early estimates indicate that crude inventories dropped by 370,000 barrels last week, a decline that, if borne out in official data, could further tighten the market.