Trade Deal Expectations Impacting Oil
The CFTC COT report showed that investors increased their net long positions in WTI crude last week by a further 40,961 contracts. The total net-long position now stands at 470,936 contracts. The key premise for the build in upside exposure in WTI has been the rising expectations of a US-Sino trade deal. Last week, positive commentary from both the US and China saw a notable increase in optimism, which lifted asset prices around the globe.
Optimism over a potential trade deal between the two leading global economies has been a key mitigating factor for WTI prices, helping offset the downside impact of the recent build in US WTI levels. Over recent weeks, both the API and EIA have reported large surpluses in US WTI inventories which has put downward pressure on WTI prices.
However, with the market focusing on a potential trade deal. WTI has been able to avoid any significant breakdown. If the US and China can sign off on the phase-one trade deal laid out in October, this will be highly supportive for the outlook in WTI prices. As the largest global consumer of WTI, the Chinese economy is an important marker for WTI traders to watch. The negative impact of the trade war has been clearly seen in both the Chinese economy and the global economy as a whole. A trade deal would greatly improve expectations for growth, both domestically and globally, lifting WTI prices on expectations of increased demand. On the other hand, if the US and China do not sign off on a deal this year, the negative impact for oil prices could be quite severe. The breakdown in trade talks earlier in the year put an end to the initial rally in WTI and if talks collapse again, we could see another leg lower for WTI.
OPEC Meeting Due
The supply demand backdrop will be a key source of discussion at the OPEC meeting taking place this week (December 5th/6th). Industry analysts expect that OPEC will decide on a new set of supply restraints aimed at lifting oil prices though opinions are split over what shape these new restrictions will take. Given the continued rise of US crude production, which has been a major issue for OPEC this year, anything short of a deeper set of production limits is unlikely to fuel much upside in WTI prices.
EIA Reports Inventories Draw
The EIA this week reported that US WTI inventories suffered a heavy drawdown last week of 4.9 million barrels. The drawdown exceeded analyst projections and has offered WTI prices further support into the end of the week ahead of the OPEC meeting. WTI is over 3% higher on the week now following the bullish EIA update which has put an end to the recent string of five consecutive weekly increases in inventory data.
Technical & Trade Views
WTI Crude (Bullish, above $55)
WTI From a technical and trade perspective. WTI rallied strongly after retesting the yearly pivot at $54.8, taking price back above the monthly pivot at $58. While this level remains supportive, bias remains for continued upside, in line with longer-term VWAP remaining positive.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!