By Barani Krishnan
Investing.com - Oil prices rose on Tuesday on bets for a sixth straight weekly draw in U.S. crude stockpiles and excitement over a resumption of U.S.-China trade talks.
Bloomberg reported that U.S. Trade Representative Robert Lighthizer and a group of aides were traveling to Shanghai Monday for the first talks about the U.S.-China trade dispute since May. The talks, expected to last through Wednesday, aren't expected to result in a trade deal, however.
Nonetheless, the news pushed markets of all kinds higher even as Iran tried to strike a conciliatory note with incoming U.K. Prime Minister Boris Johnson over the tanker dispute between the two countries.
U.S. West Texas Intermediate crude settled up 55 cents, or 1%, at $56.77 per barrel in New York after trading as high as $56.92 earlier.
London-traded Brent, the benchmark for oil outside of the U.S., settled up 57 cents, or 0.9%, to $63.83. The session peak was $63.97.
The China news superceded a conciliatory gesture to the United Kingdom from Iran's foreign minister. "I congratulate my former counterpart, @BorisJohnson on becoming UK PM,” Foreign Minister Javad Zarif said in a tweet on Tuesday.
“Iran does not seek confrontation,” Zarif added. “But we have 1,500 miles of Persian Gulf coastline. These are our waters & we will protect them."
Geopolitical tensions have steadily risen in the Gulf in recent months, with U.S. sanctions against Iranian oil pushing Tehran into retaliation mode. On Friday, Tehran seized the British-flagged tanker Stena Impero in the Strait of Hormuz, a bottleneck through which one-fifth of world oil supply passes.
Iran’s move was in response to the detention of one of its own vessels off the Gibraltar Coast by U.K. authorities acting on the orders of British Prime Minister Theresa May, who will tender her resignation on Wednesday. She had defended her action by saying that the Iranian vessel was carrying prohibited oil cargoes meant for Syria.
“The May govt's seizure of Iranian oil at behest of (the) U.S. is piracy, pure & simple," Zarif tweeted on Tuesday.
U.S. Secretary of State Mike Pompeo indicated on Monday that the U.S. wouldn't respond to the incident, saying it was the U.K.'s responsibility to protect its own ships. The U.K. government responded by calling on other European states to put together a naval force capable of protecting vulnerable shipping.
Stephen Innes, managing partner of Vanguard Markets, called the dispute "more bark than bite,” adding that traders have found it easy to shrug off.
“While oil prices remain supported by Middle East geopolitical risk, the market's reaction has been muted due to the ascendency of U.S. shale production, which is tempering supply risk premiums,” Innes said.
Global oil consumption has stalled since the middle of 2018, making lower oil prices inevitable despite the best efforts of Saudi Arabia and its allies to reduce production, Reuters oil columnist John Kemp said on Tuesday.
That said, with fears of a more serious dispute temporarily abating, market focus is expected to lean toward weekly U.S. oil inventory data due from the Energy Information Administration.
Analysts expect the EIA to announce on Wednesday a sixth-straight weekly drawdown of crude. They expect a decline of 4.01 million barrels for the week ended July 19, after a total of more than 30 million drawn over five previous weeks.
The American Petroleum Institute will release at 4:30 PM ET on Tuesday a snapshot of what the EIA data would likely contain.