Oil prices hit their highest level since mid-November on Friday as the market grew more hopeful that the United States and China would soon reach a deal to end the ongoing trade war.  Anadarko photo.

Oil prices gains limited by record high US production

Oil prices rose to three-month highs on Friday as trade talks between the United States and China continued, however, gains were limited by record-high US crude production.

By 2:56 p.m., EST, benchmark Brent crude futures dipped three cents to $67.16.  Earlier in the session, Brent futures hit $67.73, the highest since mid-November.  Brent was on track for a gain of about 1.4 per cent.

US West Texas Intermediate futures rose 26 cents to $57.22/barrel, down from a session high of $57.81, the highest WTI has been since mid-November.  WTI is set to gain over 3 per cent this week.

Data from the US Energy Information Administration on Thursday showed US crude production hit a record-high 12 million barrels per day (b/d).  US crude stockpiles also jumped last week to their highest since October 2017.

Reuters reported on Thursday that there is a broad outline of a possible US – China trade deal beginning to emerge as the two economic superpowers continue to discuss trade.

Both sides are said to be pushing for an agreement by March 1, the end of a 90-day tariff truce agreed to late last year by US President Donald Trump and Chinese President Xi Jinping.

“Should risky assets receive some additional optimistic news out of the ongoing U.S.-China trade talks amidst potential weakening in the U.S. dollar, WTI could easily achieve our stated target to the $58 area today,” Reuters reports Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

Oil prices are also underpinned by the most recent OPEC supply cut agreement which sees participants cut their total production by 1.2 million b/d.  The cartel and other participants, including Russia, entered into the agreement to reduce the oversupply of crude on the global market.

However, rising US production is hampering their efforts.

“We see total U.S. crude production hitting 13 million b/d by year-end, with 2019 averaging 12.5 million b/d,” Reuters reports U.S. bank Citi said following the release of the EIA report.

According to the bank, during some weeks, US gross crude exports could hit 4.6 million b/d by the end of the year.  Last week, US crude exports hit a record high of 3.6 million b/d.

Baker Hughes reported on Friday the US oil rig count fell by four to 853.  In Canada, the oil rig count dropped by eight to 144.

Goldman Sachs forecasts non-OPEC crude supply to grow by 1.9 million b/d this year, which will more than offset OPEC cuts.  As well, global crude demand is expected to grow by 1.4 million b/d.

As such, Goldman predicts Brent oil prices will average between $60-$65/barrel in 2019 and 2020.