U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Monday, but the markets have clawed back most of their earlier losses. The early selling pressure was a knee-jerk reaction to the steep sell-off in the global equity markets. This was fueled by renewed concerns over the status of U.S.-China trade relations. With the possibility of a stalemate in the trade talks between the two countries, investors are worried that a prolonged trade dispute will lead to further global economic weakness and lower demand for crude oil.
WTI and Brent also briefly crossed to the weak side of their respective 200-day moving averages before surging back over them. This is an important move because if proves that there are still buyers in the market looking for value. Ultimately, trader reaction to the 200-day moving average will determine the trend of this market.
The financial markets were rattled early in the session after U.S. President Trump said he would sharply raise tariffs on Chinese goods later this week, risking the derailment of trade talks between the world’s two biggest economies.
Despite the renewed concerns over demand, the market continues to be well supported by tight supply due to the OPEC-led supply cuts, and the U.S. sanctions against Iran and Venezuela. However, investors have been on edge lately because of the jump in U.S production that has surged more than 2 million barrels per day since early 2018 to a record 12.3 million bpd.
Traders are also worried about the duration of the OPEC-led plan to trim production and stabilize prices. The cartel and its allies are scheduled to meet in June. At that time, Russia may opt to leave the deal, which could pressure prices.