By Barani Krishnan
Investing.com – After the biggest crude inventories decline in three years, oil's immediate fate hangs on President Xi Jinping of China and President Vladimir Putin of Russia, and maybe even Saudi Arabia Crown Prince Mohammed bin Salman.
Crude prices were mixed on Thursday after the previous day’s near-3% rally, as traders remained wary of the outcomes of meetings that Xi, Putin and Salman have with U.S. President Donald Trump at the G20 summit in Osaka, Japan, beginning tomorrow.
New York-traded West Texas Intermediate crude settled up 5 cents, or 0.1%, at $59.43 per barrel. It rose 2.7% on Wednesday.
The September contract for London-traded Brent crude slipped by 22 cents, or 0.3%, to $65.47 per barrel by 2:38 PM ET (18:38 GMT). Brent, the benchmark for oil outside of the U.S., settled up 2.2% in the previous session.
Trump is scheduled to meet Putin in Osaka on Friday. He is scheduled to have breakfast with Salman on Saturday and meet later in the day with Xi.
Putin will have to decide by next week on Russia’s cooperation with Saudi Arabia in extending oil production cuts under their OPEC+ pact. The Saudi-led OPEC meets on Monday among its 14 members and a day later with the group of 10 oil-producing allies led by Russia to talk about extending supply cuts that had been on since December.
If OPEC+ pushes for cuts till the year end, that could heighten the rally in oil and work against Trump, who wants both crude and pump prices of gasoline to remain low as he campaigns for reelection in 2020.
Putin has close ties with the Saudis and Salman, partly due to their common stake in protecting their oil interests.
Even so, analysts believe Trump will have two aces to play, with Salman and Xi.
Olivier Jakob, founder of Swiss consultancy PetroMatrix, referred to the likely leverage the U.S. president has over the Saudis, who want higher security for oil tankers in the Persian Gulf after a spate of attacks over the last month blamed on Iran.
Tehran, locked in an escalating battle of words with the U.S. over sanctions on its oil, has denied responsibility for the attacks. Last week, it shot down a U.S. surveillance drone, worsening its conflict with Washington, as it refused to renegotiate a nuclear deal with Trump.
With U.S. gasoline prices on the rise, when Trump meets the Saudi crown prince, he “will likely ask again for higher supplies (of oil) as the U.S. pays for security of tankers in the Strait of Hormuz,” Jakob said.
With Xi, the president could have a bigger ace to play.
Trump has been sending out mixed signals on the likely outcome of the talks with the Chinese leader from the time he tweeted a week ago that he had a “very good” phone call with Xi as they agreed on the Osaka meeting.
Trump said on Wednesday that a trade deal with China was possible, but added that he was happy with the way things were and was still considering more tariffs on Beijing. He said all these even as U.S. Treasury Secretary Steve Mnuchin kept insisting the two countries were “90% of the way” toward a trade deal.
White House economic advisor Larry Kudlow said today the U.S. could still move forward with increased tariffs on Chinese goods, further clouding the trade picture.