Crude prices rose more than 1 per cent overnight to their highest level this year on hopes that oil markets will balance later this year, helped by output cuts from top producers as well as US sanctions on OPEC members Iran and Venezuela.

Market fears over trade talks between the United States and China had helped push oil prices lower in early trade, but the market reversed after signs of progress emerged overnight and strengthened equity markets.

US President Donald Trump said negotiations with China were going well and suggested he was open to extending the deadline to complete them beyond March 1, when tariffs on $US200 billion worth of Chinese imports are scheduled to rise to 25 per cent from 10 per cent.

‘We’re in a market waiting for the next headline to drive us higher or lower,’ said Phil Flynn, analyst at Price Futures Group in Chicago, adding US-China trade talks are among the issues that market participants have focused on the most.

Brent futures rose 63 US cents, or 0.95 per cent, to settle at $US67.08 a barrel.

US West Texas Intermediate crude (WTI) for delivery in March settled at $US56.92 a barrel, up 83 US cents, or 1.48 per cent, ahead of the contract’s expiry.

The more active April contract settled at $US57.16, up 71 US cents, or 1.38 per cent.

‘The market this week has pushed to three-month highs on expectations of tightened supplies,’ said Gene McGillian, vice president of market research at Tradition Energy in Stamford in the US.

‘OPEC and Russia are enacting cuts and concerns about reduced Venezuelan exports have helped push markets up.’

The Organisation of the Petroleum Exporting Countries and other producers, including Russia – an alliance known as OPEC+ – agreed to reduce oil supply by 1.2 million barrels per day from January 1 this year.

A monitoring committee for OPEC and its allies found the group’s compliance with its agreement at 83 per cent, four delegates told Reuters on Wednesday.

Saudi Energy Minister Khalid al-Falih said he hoped the oil market would be balanced by April and that there would be no gap in supplies due to US sanctions on Iran and Venezuela.

‘You could take that as a signal that Saudi Arabia will continue to take a pro-active approach,’ said Andy Lipow, president of Lipow Oil Associates in Houston.

Some supply disruptions have further tightened supplies.

Saudi state oil firm Aramco last week shut part of its Safaniyah offshore oil field after a power cable was inadvertently cut.

Production at Libya’s contested El Sharara field has been halted since December.

US sanctions on Iran and Venezuela have also helped to reduce the availability of crude on the global market.

However, price gains were capped as those supply disruptions were offset by expectations of inventory builds in the United States following a sharp reduction in refineries’ capacity utilisation in the US midwest.

US crude stockpiles were expected to have risen by 3.1 million barrels last week, the fifth consecutive weekly build, an extended Reuters poll showed.

Inventories at Cushing, Oklahoma, the main US oil storage hub, will grow largely because US data shows refinery capacity utilisation in the midwest dropped to 84.2 per cent from 92.9 per cent the previous week, following a string of planned and unplanned outages, analysts said.

‘That will leave a lot of barrels on the sidelines,’ said Robert Yawger, director of energy futures at Mizuho in New York.

Weekly US inventory data is delayed by a day due to the Presidents Day holiday on Monday.

The American Petroleum Institute will release its data on Thursday AEDT, while the US Energy Information Administration report is also due on the day.

The EIA said on Tuesday shale production alone will hit a record 8.4 million bpd next month, suggesting little chance of a near-term slowdown in overall US crude output.

BNP Paribas said surging US output would feed into lower oil prices toward the end of the year, with Brent to dip to an average of $US67 by the fourth quarter and WTI to average $US61.

‘US oil production growth, driven by shale, will be increasingly exported in greater volumes to international markets while the global economy is expected to witness a synchronised slowdown in growth,’ the bank said.