Trade Talk Concerns Leaning On Oil Prices
Benchmark WTI prices have been lower this week as emerging concern for the prospect of a US-Sino trade deal has stunted demand. Crude prices had been supported recently amidst expectations that the “phase one” trade deal agreed between the US and China was to be signed. However, with the Chilean APEC summit cancelled at short notice, the deal has still to be signed and with date not yet agreed, the market is now starting to show signs of concern.
Recent reports suggest that China is unhappy with the current terms of the deal and is still waiting for the US to agreed to dismantling the current trade tariffs. The US continues to insist that it will not remove existing trade tariffs and has also cautioned China that if a deal is not agreed by December 15th, the next round of tariffs (15% on nearly $160 billion of Chinese goods) will come into effect.
The trade stand-off between the US and China has been a major influencing factor for crude prices this year. At the start of the year, signs that a deal was going to be done helped boost prices. With China being the chief global consumer of oil, the outlook for the Chinese economy is a key determinant of oil demand. The collapse of trade talks earlier in the year weighed heavily on crude prices. The continued decline of manufacturing readings in both the US and China, over 2019, has kept oil demand expectations subdued and looks set to continue a while longer given the uncertainty over the health of trade talks.
OPEC has recently revised its oil demand outlook lower for the US and the world as a whole. Oil demand is now expected to reduce by around 7% over the coming four years. This outlook is especially troubling in light of the continued rise of US crude production. The EIA recently revised its US crude production outlook higher and expects levels to continue to increase well into 2021.
In light of the continues in US crude production, the US-Sino trade standoff is taking on extra importance. OPEC recently highlighted that the current situation is leading the group to consider further action and the market widely expects that OPEC will announce new measures when it meets next in December. With trade talks continuing to stagnate, there is a very real risk of another leg lower in crude prices. The oil market has been ranging since the end of Q1 when US-Sino trade talks collapsed and the consolidation looks set to continue until there is a clear outcome to talks.
EIA Notes Further Inventories Build
In its latest report, the EIA said that US crude inventories rose by 1.4 million barrels last week. However, this was slightly less than the expected 1.5 million barrel increase, though is still leaning on prices today. US crude levels has now risen solidly over the last month, reflecting the supply/demand issue impacting prices.
Technical & Trade Views
WTI Crude (Bullish, above $55)
WTI From a technical and trade perspective. WTI is still holding above the yearly pivot at $54.88. Although price has so far been held up at the monthly R1 at $57.09 bias remains for continued upside, in line with longer-term VWAP remaining positive. This view will only change if we move back below the monthly pivot at $53.87.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!