Oil prices rose on Thursday, recovering from the previous day's decline, on news that the US and China agreed to further trade talks after a phone call between US President Donald Trump and Chinese leader Xi Jinping.

Brent crude futures were up 48 cents, or 0.7%, at $65.34 a barrel. US West Texas Intermediate crude futures were up 52 cents, or 0.8%, at $63.37 a barrel.

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

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

Trump said on social media that his call with Xi focused primarily on trade and resulted in "very positive conclusions." He announced further low-level discussions between the US and China.

"We are in very good shape with China and the trade deal," he told reporters later.

Canadian Prime Minister Mark Carney and Trump also spoke directly as part of Ottawa's efforts to persuade Washington to lift tariffs, Industry Minister Melanie Joly said.

The news cheered 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 production provided further support for prices, although the market could be oversupplied in the second half of the year with an expected increase in OPEC+ output, 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.

Saudi Arabia's crude price cuts follow OPEC+'s move late last week to increase output by 411,000 barrels per day in July.

The strategy of Saudi Arabia, OPEC's de facto leader, is partly to punish overproducing producers by potentially halting production cuts of 2.2 million barrels per day between June and the end of October, in a bid to regain market share, Reuters previously reported.

In economic news, data on Wednesday showed the U.S. services sector contracted in May for the first time in nearly a year.

The number of Americans filing new applications for unemployment benefits rose in the week to May 31, marking the second straight weekly jump, the Labor Department said on Thursday, citing weakening 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