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Oil steady on trade pact optimism

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Oil prices hovered around three-month highs on Monday following a higher-than-expected crude inventory drawdown and optimism over an expected US-China trade deal, while traders kept a close eye on Middle East unrest.

[SINGAPORE] Oil prices hovered around three-month highs on Monday following a higher-than-expected crude inventory drawdown and optimism over an expected US-China trade deal, while traders kept a close eye on Middle East unrest.

Markets showed little immediate reaction to news of US air strikes in Iraq and Syria against an Iran-backed militia group, even as US officials warned "additional actions" may be taken.

West Texas Intermediate (WTI) crude futures edged up one cent to US$61.73 a barrel by 0210 GMT. The US benchmark is up about 36 per cent so far this year.

Brent crude futures were at US$68.28 a barrel, up 12 cents. The international benchmark has risen around 27 per cent in 2019.

"There are a couple of catalysts driving up the crude oil prices recently: trade optimism, a large drop in US commercial stockpiles, a plunge in USD and air strikes," said market analyst Margaret Yang of CMC Markets.

China's Commerce Ministry said on Sunday that it is in close touch with the United States on the signing of a long-awaited trade deal.

The two countries on Dec 13 announced a "Phase one" agreement that reduces some US tariffs in exchange for what US officials said would be a big jump in Chinese purchases of American farm products and other goods.

Oil prices were also supported by a bigger than expected fall in US crude stocks. US stockpiles fell by 5.5 million barrels in the week to Dec. 20, far exceeding a 1.7-million-barrel drop forecast in a Reuters poll.

In the Middle East, protesters on Saturday forced the closure of Iraq's southern Nassiriya oilfield, while United States carried out air strikes on Sunday in Iraq and Syria against the Kataib Hezbollah militia group.

"Traders are keeping an eye on the smouldering powder keg in Iraq, Opec's second large producer," said Stephen Innes chief Asia market strategist at AxiTrader.

US officials said the air strikes in response to the killing of a US civilian contractor in a rocket attack on an Iraqi military base were successful, but warned that "additional actions" may still be taken.

Iraq's oil ministry said the production halt at the Nassiriya oilfield will not affect the country's exports and production operations as it will use additional output from southern oilfields in Basra.

Mass protests have gripped Iraq since Oct 1.

Elsewhere, Libyan state oil firm NOC said it is considering the closure of its western Zawiya port and evacuating staff from the refinery located there due to clashes nearby. 

REUTERS