Crude Steady as Investors Eye U.S-China Trade Talks

Trade Deal Optimism on Hold

The ongoing trade war between China and the U.S. has taken a toll on both economies and contributed to weaker global growth. Recent figures show that the Chinese economy has been hit hard, which may force the Chinese to show some flexibility in the current round of talks between the sides. In September, Chinese exports to the U.S. declined by 22%, on an annualized basis. The Chinese manufacturing sector is sputtering, as the Chinese Manufacturing PMI has pointed to contraction for the past four months.

The markets were brimming with optimism last week, as the U.S. and China renewed trade talks after a long break. Previous rounds of negotiations have ended without success, but these talks are taking a different approach, with a focus on achieving a limited deal, which is being labeled “Phase 1”. The aim is to reach a partial agreement and leave thorny issues such as intellectual property theft for another day. However, China is saying that additional talks will be needed before a limited agreement is reached. In the meantime, the Trump administration suspended higher tariffs which were set to take effect this week. Still, tariffs that are scheduled to take effect in December remain in place. The level of progress in these talks can have a significant effect on crude prices, since a trade agreement between the two largest economies in the world would re-energize the world economy and increase demand for crude from China and other major economies.