WTI and Brent Crude Oil

Oil Price Fundamental Daily Forecast – Lack of Details Over Trade Deal Progress Capping Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed early Monday. The markets are likely being underpinned by the hopes of a U.S.-China trade deal and the possibility of deeper production cuts by OPEC and its allies. Helping to keep a lid on prices are worries over demand and oversupply.

At 08:39 GMT, January WTI crude oil is trading $57.88, up $0.05 or +0.07% and January Brent crude oil is at $63.22, down $0.08 or -0.13%.

Trade Deal Hopes Underpinning Prices

Traders are optimistic over a possible trade deal because of comments from two high-ranking U.S. officials at the end of the week, and friendly remarks from a Chinese official on Saturday.

White House economic adviser Larry Kudlow said on Thursday that negotiations over the first phase of a trade agreement with China were coming down to the final stages, with the two sides in daily contact.

U.S. Commerce Secretary Wilbur Ross said in an interview on Fox Business Network Friday that there was a very high probability the United States would reach a final agreement on a phase one trade deal with China.

On Saturday, according to Chinese state media, Chinese Vice Premier Liu He spoke with Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer about a phase-one trade deal in a phone call Saturday morning.

The two sides had “constructive discussions” about “each other’s core concerns” and agreed to remain in close contact, Xinhua reported. The call came at the request of Mnuchin and Lighthizer, according to Xinhua.

Traders Hoping for Deeper Cuts from OPEC

OPEC said last Thursday it expected demand for its oil to fall in 2020, supporting a view among market participants that there is a case for the group and its allies including Russia to deeper their current cuts in output. OPEC and its allies are expected to discuss output policy at a meeting on December 5-6 in Vienna. Their existing production deal runs until March.

IEA Predicts Non-OPEC Supply Growth

A monthly report from the International Energy Agency (EIA) released on November 14 may be helping to cap prices, after it estimated that non-OPEC supply growth would increase to 2.3 million barrels per day (bpd) next year compared, with 1.8 million bpd in 2019, citing production from the United States, Brazil, Norway and Guyana.

This news is short-term bearish, but OPEC and its allies can make some of the problem go away if its new production cuts take this news into account.

Daily Forecast

The current U.S.-China trade deal headlines could hold the crude oil market hostage for a few days until there is fresh news. The recent price action indicates traders are being reactive to the news, not proactive.

Furthermore, given the lack of concrete details from Kudlow, Ross and the Chinese, crude traders are likely to be tentative. Some analysts are also being a little skeptical.

“To be blunt, such rhetoric is more or less the same as Steven Mnuchin (who) said months ago that a deal was ‘99% done’,” Commerzbank analysts wrote in a note to clients, though they acknowledged the comments had benefited sentiment.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.