Oil prices climb to 2-month high on US-China trade deal, worries about Iran supply

Oil prices rose 2% on Wednesday, to their highest in more than two months, as President Donald Trump said the U.S. had a trade deal with China, feeding hopes for the outlook for energy demand in the world's two largest economies.

Brent crude futures rose $1.32, or 1.97%, to $68.19 a barrel at 11:35 a.m. EDT (1535 GMT). U.S. West Texas Intermediate crude was up $1.51, or 2.32%, to $66.49. Both Brent and WTI reached their highest in more than two months.

Trump said Beijing would supply magnets and rare earth minerals and the U.S. will allow Chinese students in its colleges and universities. Trump added the deal is subject to final approval by him and President Xi Jinping.

The trade-related downside risk in oil has been temporarily removed, although the market reaction has been tepid as it is not clear how economic growth and global oil demand will be affected, PVM analyst Tamas Varga said.

Trump said he was less confident that Iran would agree to stop uranium enrichment in a nuclear deal with Washington, according to an interview released on Wednesday.

Iran threatened to strike U.S. bases in the Middle East if nuclear negotiations fail and conflict arises with Washington.

Ongoing tension with Iran means its oil supplies are likely to remain curtailed by sanctions.

Supplies will still increase, as OPEC+ plans to boost oil production by 411,000 barrels per day in July as it looks to unwind production cuts for a fourth straight month.

"Greater oil demand within OPEC+ economies – most notably Saudi Arabia – could offset additional supply from the group over the coming months and support oil prices," said Capital Economics' analyst Hamad Hussain in a note.

In the U.S., crude inventories fell by 3.6 million barrels to 432.4 million barrels last week, the Energy Information Administration said on Wednesday. Analysts polled by Reuters had expected a draw of 2 million barrels.