Oil gained on Wednesday ahead of an expected extension to production curbs by Opec and its allies, with further support from industry data showing a larger than forecast drop in US crude stockpiles.

Brent crude futures were up $1.18, or 1.9%, at $62 a barrel by 1151 GMT. US West Texas Intermediate (WTI) crude futures were up by 94 cents, or 1.7%, at $57.04. The Organization of the Petroleum Exporting Countries (Opec) and allies that include Russia - a group known as Opec+  could approve deeper crude output cuts when they meet in Vienna this week.

Iraqi oil minister Thamer Ghadhban told reporters in Vienna on Tuesday that “a deeper cut is being preferred by a number of key members”.

There is still some market scepticism over over a deepending of cuts, though it is accepted that the producer group is keen to support prices, with many analysts expecting an extension of the existing supply pact.

“Amid (the) trade war uncertainty, Opec will be even more determined to maintain a floor on oil prices and will work to deliver precisely that outcome,” said Stephen Innes, chief Asia market strategist at AxiTrader.

Opec members meet on Thursday, with the Opec+ group meeting the following day. Opec+ has been curbing supply since 2017 and is expected to keep the cuts in place to balance out record production in the United States.

US crude oil inventories fell more than expected last week, according to the American Petroleum Institute (API). The API said crude stocks dropped by 3.7 million barrels, more than double the expected 1.7 million barrels.

“Tuesday’s inventory number from API won’t have done crude any harm... Expectations for the US Energy Information Administration release today are for a smaller drawdown, which could provide another boost for oil prices,” said Craig Erlam, senior market analyst at OANDA Europe.

Oil prices are being held back by the uncertainty over prospects for a trade deal between the United States and China. The dispute between the world’s two biggest economies has weakened the global economy and limited oil demand growth.

US President Donald Trump on Tuesday said an agreement to end the trade conflict may have to be delayed until after the American presidential election next November.

Prices are likely to fall next year as oil supplies keep rising, outweighing any pick up in growth, Fitch Solutions said. It predicted Brent crude will drop to an average of $62 a barrels in 2020 and $58 in 2021, from a $64 average this year.

European stocks recovered on Wednesday from their losses the day before, when US President Donald Trump surprised world markets by saying a trade deal with China could wait until after the 2020 presidential election in November.

Morning gains became a rally when news agency, citing unidentified sources, said the United States and China were in fact moving closer to agreeing on the amount of tariffs that would be rolled back in phase one of a trade deal.

While Trump had dashed hoped for a preliminary agreement and triggered a sell-off in stocks on Wall Street and in Asia, the news agency report caused a brutal swing that took traders by surprise.

“There are playing with the nerves of investors,” said Mikael Jacoby, a senior equity sales trader at Oddo Securities, adding there was a sense of fatigue and frustration watching markets swing on the basis of headlines and tweets.

“One day they will guide positively, another negatively”, Jacoby said, noting that markets could be expected to continue their up and down moves until a trade agreement is reached.

Fresh US tariffs on Argentina and Brazil, plus a threat to impose duties on French goods, are fuelling fears that risks are tilting towards an escalation of the crisis.

The pan-European equity index STOXX 600, which had slumped 2.2% since the beginning of the month, was up 1%. Futures markets were signalling a Wall Street opening in positive territory.

Before the report, European trading showed little reaction when data indicated eurozone business activity stayed near stall speed last month. Manufacturing continued to drag on the dominant services industry.

Euro zone government bond yields yo-yoed in early trading, but speculation on a possible US/China agreement pushed 10-year German Bund yields up 1 basis point to -0.337%.

Yields across the euro area followed suit, rising by 1 to 2 bps. In the United States, the 10-year Treasury yield jumped by 1.75%, then fell back to about 1.74%.

 The latest trade war scare ended a rally that had lifted the S&P 500 since early October, when top diplomats from China and the United States met and outlined an initial agreement that Trump said he hoped could be sealed within weeks.

US Commerce Secretary Wilbur Ross said that if no substantial progress was made soon, another round of duties on Chinese imports, including cell phones, laptops and toys, would take effect on Dec. 15.

The US House of Representatives passed a bill proposing a stronger response to a crackdown on Muslims in western China, drawing swift condemnation from Beijing on Wednesday, to add another layer of tension. Beijing’s handling of unrest in Hong Kong has also drawn criticism from Washington.

Agencies