Trade Deal Hopes VS Negative OPEC Outlook

WTI prices commenced the week in demand as expectations that the US and China will formally approve the mini-trade deal agreed earlier this month helped support global investor appetite. The driving force behind the latest surge in optimism over US-Sino trade discussions was the comments made at the end of last week by Wilbur Ross, the US Secretary of Commerce who said that negotiations between the two countries were “very far along”. Ross also said that the officials engaged in the meetings were “making good progress”. The US has given China until December 15th to sign off on the deal before the next wave of US tariffs go live. However, investors currently expect the deal be signed off this month at the APEC meeting in Chile, leading the way for the two sides to begin discussing phase-two of the deal.

OPEC updated its annual observations on the direction of the global oil market this week and the forecasts make for very interesting reading. In its World Oil Outlook 2020, the 13-member cartel said “At the global level, growth is forecast to slow from a level of 1.4 million barrels per day (bpd) in 2018 to around 0.5 million bpd towards the end of the next decade”. The reduction this outlook reflects OPECs reduced oil demand outlook. Looking out over the next two decades OPEC has reduced its projections for global oil demand growth to 104.8 million bpd by 2024, with demand expected to fall further to 110.6 million bpd by 2040.

In its report OPEC has also said that it expected oil supply from Non-OPEC members to overtake demand, taking the market back into an imbalance. US shale oil supply remains the biggest driver of the anticipated move. In the report OPEC said projects that by 2025, U.S. oil output, fuelled by shale, will have increased by more than 40% to a level of 17 million bpd. This latest projection marks an upward revision of 3.1 million bpd from the forecast made in last year’s market assessment.

EIA Reports Massive Inventories Rise

The latest release from the EIA has done little to assuage the concerns of OPEC. Last week, US crude inventories were recorded having increased by 7.9 million barrels. This was a 500% increase on the expected 1.5 million barrel increase and is the second consecutive week of outsized gains in US crude stores. The increase was mainly attributed to reduced tanker availability as a result of US sanctions on Chinese shipping magnet COSCO as well as a reduction in net US exports.

Technical & Trade Views

WTI Crude (Bullish, above $55) 

WTI From a technical and trade perspective. Longer term VWAP has flipped positive here as WTI continues to trade above the yearly pivot at $54.88. Price has so far been held up at the monthly R1 at $57.09 though bias remains for continued upside. Momentum studies flag the risk of a correction in the near term though any dips should offer further long opportunities. This view will only change if we move back below the monthly pivot at $53.87.

The Crude Chronicles - Episode 12

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