WTI Longs Build On Trade Deal Optimism

The CFTC reported that over the last week, net long positions in WTI Crude futures were higher by 22,512 contracts, moving back up to a total long position of 138,389 contracts. This most recent build in US crude exposure reflects optimism towards the ongoing US-Sino trade negotiations which are expected to yield a deal this month. Trump has been pushing for the “phase one” trade deal to be signed at the APEC meeting taking place over November 16th/17th in Chile. Despite the summit being cancelled, Recent headlines and commentary have continued to support the view that a deal will be done and traders have consequently been building their long exposure.

However, in a speech made this week in New York, where Trump was expected to discuss the potential deal signing, the market was left short-changed as Trump restricted his comments on the matter. Global investor appetite was visibly weaker following the comments, pulling WTO prices lower.

Losses in WTI were quickly reversed over the middle of the week, however, as OPEC took traders by surprise with a more optimistic outlook. Mohammad Barkindo, who is the Secretary-General of the Organization of the Petroleum Exporting Countries, said that despite weaker conditions recently, global economic fundamentals were strong and sees no sign of a global recession. Barkindo also said that he is confident the US and China will sign the proposed trade deal which will “remove that dark cloud that had engulfed the global economy,”

These more optimistic sentiments were backed up by Fed chairman Powell who also spoke this week. During his comments, Powell said that the US would see a “sustained expansion”, noting that the economy was yet to experience the full impact of recent rate cuts. Powell said that “the baseline outlook remains favourable”, encouraging the view that the Fed will remain on hold for the rest of the year.

OPEC & Fed More Optimistic

The Secretary-General also noted that oil supply growth could start to reduce next year which would help lift prices. Barkindo said that there is likely to be downward revisions to supply forecasts into 2020, most notably in the US where some US shale companies have already been submitting lower estimates compared to recent OPEC forecasts. Barkindo said “This is coming from the companies themselves, who are saying our numbers are more optimistic “We are more optimistic than them. They expect a sharper deceleration.”

The International Energy Agency did not strike such a dovish tone in its latest update, delivered yesterday. Although commenting more on the long term view, the IEA said that global oil demand will likely fall from 2025 as fuel efficiency improves and electric vehicles take on more market share.

The latest update from the EIA has been delayed this week to the holiday in the US and will be released later today. WTI crude inventory levels in the US have risen over the prior two weeks and should we see any further build, this would likely dampen near term price action in WTI markets.

Technical & Trade Views

WTI Crude (Bullish, above $55) 

WTI From a technical and trade perspective. 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, 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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