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James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading marginally higher on Tuesday after finishing mixed the previous session. Traders are saying the markets are being underpinned today on hopes the current talks between U.S. and Chinese officials in Beijing will bring an earlier-than-expected end to the ongoing trade dispute between the two economic powerhouses.

At 0847 GMT, February WTI crude oil is trading $48.63, up $0.11 or +0.22% and March Brent crude oil is at $57.50, up $0.17 or +0.30%.

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Continuing to underpin the markets is optimism that the on-going OPEC-led supply cuts will trim the excess global supply and stabilize prices.

Trade Talk Hopes Helping Bullish Traders, But …

Traders hoping for a fast end to the trade dispute were encouraged late Monday by comments from U.S. Commerce Secretary Wilbur Ross who said that Beijing and Washington could read a trade deal that “we can live with”.

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Bears Aren’t as Optimistic

Some analysts believe that this round of talks are unlikely to yield any fruit and fear the talks may go down to the wire, which is essentially the March 1 truce deadline agreed upon by U.S. President Trump and China’s President Xi Jinping on December 1.

Political risk consultancy Eurasia Group said in its 2019 outlook, “We remain concerned about the world’s most important bilateral relationship.”

“The U.S. political establishment believes engagement with Beijing is no longer working, and it’s embracing an openly confrontational approach… (and) rising nationalist sentiment makes it unlikely that Beijing will ignore U.S. provocations,” Eurasia Group said.

Goldman Sachs Slashes 2019 Oil Price Forecast

Crude oil reversed early gains on Monday after Goldman Sachs downgraded its oil price forecasts for 2019, citing a surge in global production and surprisingly resilient U.S. shale growth. The investment bank is now looking for Brent to average $62.50 a barrel this year, down from a previous forecast of $70.

“We expect that the oil market will balance at a lower marginal cost in 2019 given:  higher inventory levels to start the year, the persistent beat in 2018 shale production growth amidst little observed cost inflation, weaker than previously expected demand growth expectations (even at our above consensus forecasts) and increased low-cost production capacity,” analysts including Damien Courvalin and Jeffrey Currie said.

Forecast

Today’s early price action suggests investors are pricing in bullish news from the trade talks. If something good is announced then look for WTI buyers to make a run at $50.03. This is a potential trigger point for an acceleration to the upside. The trigger point for an upside breakout for Brent is $58.71.

If the trade talks end without any positive developments then crude oil should weaken. WTI could plunge under $48.57. Brent’s trigger point for a steep breakdown is $57.11.

Later in the session, traders will get the opportunity to react to the latest data from the American Petroleum Institute. The survey for the week-ending January 4 is expected to show crude oil inventories fell 3.3 million barrels. The API report is due to be released at 2130 GMT.

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