By Jessica Resnick-Ault
NEW YORK (Reuters) - Oil prices rose more than 2 percent on Tuesday, supported by hopes that crude demand may rise more quickly if talks between U.S. and Chinese officials resolve the trade dispute between the world's two biggest economies.
U.S. West Texas Intermediate (WTI) crude oil futures (CLc1) settled up $1.26, or 2.6 percent, at $49.78 a barrel. During the session, the contract touched $49.95, the highest since Dec. 17.
Brent crude futures (LCOc1) rose $1.39 a barrel, or 2.4 percent, to $58.72.
"The trade situation is definitely bullish; you have a good demand construction if we can wrap up this trade deal," said Bob Yawger, director of futures at Mizuho in New York.
The talks are going well so far and will continue on Wednesday, U.S. delegation member Steven Winberg said.
These are the first face-to-face meetings between officials from the two countries since U.S. President Donald Trump and Chinese President Xi Jinping agreed in December to a 90-day truce in a trade war that has buffeted global financial markets.
On Monday, U.S. Commerce Secretary Wilbur Ross and China's foreign ministry expressed optimism on resolving the dispute.
Some analysts warned, however, that tensions could flare anew.
Oil traders also worried that a possible worldwide economic slowdown could dent fuel consumption. The hedge fund industry has cut significantly its bullish positions in crude futures.
S&P Global Ratings said it had lowered its average oil price forecasts for 2019 by $10 per barrel to $55 for Brent and $50 per barrel for WTI.
"Our lower oil price assumptions reflect slowing demand and rising supply globally," said S&P Global Ratings analyst Danny Huang.
OPEC VS U.S. SHALE
Crude prices have been buoyed by supply cuts from the Organization of the Petroleum Exporting Countries including top exporter Saudi Arabia, and allies including Russia.
Saudi-based Arab Petroleum Investments Corp, which funds petroleum projects, estimated that oil prices are likely to trade at $60 to $70 per barrel by mid-2019.
Still, U.S. oil supply is surging. A steep rise in onshore shale drilling has helped make the United States the world's top producer, with crude production (C-OUT-T-EIA) up 2 million barrels per day (bpd) last year to a world record 11.7 million bpd.
The market is closely watching U.S. supplies, which analysts expect pulled back 3.3 million barrels in the latest week. If government data on Wednesday confirms that forecast, it would send a strong bullish signal to the market, said John Kilduff, a partner at Again Capital Management in New York.
For a graphic on U.S. oil production & drilling levels, see - https://tmsnrt.rs/2GVNTmb
(Additional Reporting by Noah Browning; Editing by Mark Potter and David Gregorio)