Oil Price Fundamental Daily Forecast – Boosted by Optimism Over Trade Talks

Crude oil is also getting a boost today from increased appetite for risky assets. A strong stock market rally should extend the upside move in crude. Stocks could be bolstered if Fed Chair Powell softens his tone toward further rate hikes. Crude oil could get another boost if the government inventories report shows a bigger-than-expected draw down.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Friday and are in a position to close higher for the week. Earlier today, both futures contract hit their highest levels since December 19. The markets are being boosted by optimism over the announcement of higher-level trade talks between the United States and China on January 7-8. Traders said the markets are also being underpinned by the start of the OPEC-led supply cuts on January 1.

At 0955 GMT, February WTI crude oil is trading $47.99, up $0.90 or +1.89% and March Brent crude oil is at $56.97, up $1.02 or +1.82%.

Higher Level Trade Talks

Prices firmed on Friday after China’s commerce ministry said that it would hold vice-ministerial level trade talks with U.S. counterparts in Beijing on January 7-8. Given the recent string of weak economic data from both countries, it seems there would be a sense of urgency to reach an agreement before there is a global recession.

OPEC Production Cuts

OPEC and its allies including Russia, agreed in December to reduce output by 1.2 million barrels per day (bpd) in 2019 versus October 2018 levels. This is supposed to trim the excessive global supply and stabilize prices. However, it’s going to take time. Traders feel that if OPEC can stay true to the deal, the global supply glut could be cleaned up within 3 to 4 months.

Reuters reported on Thursday that OPEC is already making moves to fix the situation. According to a survey, OPEC oil supply fell by 460,000 barrels per day (bpd) between November and December, to 32.68 million bpd. Top exporter Saudi Arabia made an early start to a supply-limiting accord, while Iran and Libya posted involuntary declines.

Forecast

Crude oil is also getting a boost today from increased appetite for risky assets. A strong stock market rally should extend the upside move in crude. Stocks could be bolstered if Fed Chair Powell softens his tone toward further rate hikes. Crude oil could get another boost if the government inventories report shows a bigger-than-expected draw down.

Traders will also get the opportunity to react to the U.S. Energy Information Administration’s weekly inventories report. It is expected to show that inventories fell 2.8 million barrels during the week-ending December 28. The report is due to be released at 1600 GMT.

Earlier in the week, the American Petroleum Institute (API) reported a crude oil inventory draw of 4.5 million barrels for the week-ending December 28. Analysts were looking for a draw in crude oil inventories of 2.333 million barrels.

The API also reported a large build in gasoline inventories for the week-ending December 28 in the amount of 8.0 million barrels. Analysts had predicted a much smaller build of 2.267 million barrels for the week.

Distillate inventories increased this week by 4.0 million barrels, compared to an expected build of 2.567 million barrels.

 

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