Oil prices rose 1% on Thursday, recovering from the previous day's decline as traders responded to news that U.S. and Chinese teams would meet soon, following a trade call between U.S. President Donald Trump and Chinese leader Xi Jinping.

Brent crude futures were up 65 cents, or 1%, at $65.51 a barrel by 11:36 a.m. EDT (15:36 GMT). U.S. West Texas Intermediate crude was up 66 cents, or 1.05%, at $63.51 a barrel.

"If we step back from the brink of a major trade war, that would raise expectations for oil demand in both the U.S. and China," said Phil Flynn, senior analyst at Price Futures Group.

The official Xinhua news agency earlier reported that the talks were held at Trump's request.

The news boosted investors a day after oil fell 1% on data showing U.S. gasoline and distillate stocks grew more than expected, reflecting weaker demand in the world's largest economy.

Geopolitical events and wildfires in Canada that threaten to cut oil output provided further price support, although the market could potentially be oversupplied in the second half of the year with an expected OPEC+ output hike, said PVM analyst Tamas Varga.

Curbing the gains on Thursday, Saudi Arabia, the world's biggest oil exporter, cut its July prices for Asian crude buyers to nearly a two-month low.

The Saudi price cut follows a move by OPEC+ late last week to increase output by 411,000 barrels per day (bpd) for July.

The strategy of Saudi Arabia, OPEC's de facto leader, is partly to punish overproducing producers by potentially cutting 2.2 million bpd between June and the end of October, in a bid to claw back market share, Reuters reported earlier.

Data on Wednesday showed the U.S. services sector contracted in May for the first time in almost a year.

Additionally, the number of Americans filing new applications for unemployment benefits rose in the week ended May 31, marking the second straight weekly jump, the Labor Department said on Thursday, indicating a softening in labor market conditions amid mounting economic headwinds from Trump's tariffs.

The release of the U.S. nonfarm payrolls report for May on Friday could influence the U.S. Federal Reserve's interest rate policy, while market focus will also be on geopolitical tensions in the Middle East, said UBS analyst Giovanni Staunovo. (alg)

source: Reuters