Oil prices edged higher on Tuesday (October 21st) amid volatile trading, as investors focused on expectations that the market may be oversupplied and sought clarity regarding the trade dispute between the U.S. and China, the world's two largest oil consumers.

Brent crude rose 23 cents, or 0.4%, to $61.24 a barrel at 11:38 a.m. ET (15:38 GMT). The U.S. West Texas Intermediate crude contract for November delivery, which expires on Tuesday, rose 22 cents, also 0.4%, to $57.74.

Both contracts hit their lowest levels since early May on Monday, as record U.S. oil production and the decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies to continue with planned supply increases raised expectations of a supply glut.

The U.S.-China trade dispute has also raised expectations that slowing global economic growth will weigh on oil demand. However, both sides have attempted to defuse the dispute.

US President Donald Trump, who is scheduled to meet with Chinese President Xi Jinping in South Korea next week, said on Monday that he hopes to reach a fair trade deal with his counterpart.

The structure of the WTI and Brent futures curves has begun to shift into contango, where prices for immediate supply are lower than for later delivery. This typically indicates abundant near-term supply and declining demand. Market participants are debating the depth of the contango.

The International Energy Agency earlier this month predicted that a surplus next year would lead to a highly upward-sloping futures curve, known as super contango. However, that hasn't materialized so far, UBS analyst Giovanni Staunovo said in a note.

"Although supply concerns have resurfaced in recent weeks, we believe the oil market is oversupplied, but not in a state of oversupply," Staunovo noted.

"We expect oil prices to stabilize around current levels," he said, adding that prices could be under pressure if trade tensions escalate.

A preliminary Reuters poll released on Monday indicated that US crude oil inventories likely rose last week. "The reality of the buildup appears to have finally set in, and prices will fall, creating a deeper contango in the market," said Scott Shelton, energy specialist at TP ICAP Group. (alg)

Source: Reuters