Trade Deal Optimism Offsets Bearish EIA Release

The latest CFTC COT report showed that over prior week, net-crude positions grew by 5,378 contracts to a total of 429,975 contracts on the week. The rise in WTI positioning continues to reflect ongoing expectations that a US-Sino trade deal is forthcoming.

Over recent weeks, the market has heard comments from both US and China leaders which have generally remained supportive. Last week, Trump told FOX news that a trade deal was “potentially very close”. Following up on those comments this week, Trump told reporters that the US and China are now in the “final throes” of agreeing the phase-one trade deal which was first announced at the start of October.

Equally, the Chinese government has been playing its part in keeping optimism alive. The Chinese Ministry of Commerce last week noted that trade talks were still progressing and a deal is still expected. President Xi said that China is very interested in signing a deal based on “mutual respect and equality”.

If the two sides can sign a trade deal ahead of December 15th, this means that the market will avoid the next round of planned US tariffs. The US warned last month that is a trade deal is not signed by the 15th of December, it will go live with further tariffs on $156 billion of Chinese goods.

Attention is now turning towards next week’s OPEC meeting. The final meeting of the year is expected to see the group announcing further measures to boost oil prices. In June, OPEC extended the original production restrictions set up in January. These will now run until the end of Q1 next year. However, with WTI prices still under pressure amidst the uncertainty over US-Sino trade relations, the market now expects another round of extensions which could see production caps in place through until the middle or even the end of next year.

One of the major problems for OPEC has been the continued rise of US crude production which has been ploughing higher into record levels this year. The combination of a reduced demand outlook, tied to the ongoing US-Sino trade war, and higher US production levels, means that crude prices have been heavily anchored over most of this year. While it now seems as though an initial trade deal will be agreed in the coming weeks, a lot of tariffs remain in place which will continue to impact world trade. As such, further OPEC measures are widely expected next week.

EIA Reports Further Inventories Build

The EIA reported that WTI levels in the US were higher by 1.6 million barrels last week. This is now the fifth straight week that oil inventories have risen in the US that, reflecting the ongoing supply/demand imbalance in the market. Crude production in the US was also reported as having risen last week, hitting fresh all-time highs. This latest increase further reinforces the view that OPEC will announce new measures.

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 and continues to rise above the monthly R1 at $57.09. While this level remains supportive, bias remains for continued upside, in line with longer-term VWAP remaining positive.

 

The Crude Chronicles - Episode 15

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