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James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-Brent crude oil futures spent most of the week under pressure, but gained back nearly all of its earlier losses in one day on Friday. Throughout the week, traders were using any excuse to pressure prices including rising U.S. supply, concerns over a weakening Chinese economy, renewed tensions over U.S.-China trade relations, and reservations over whether OPEC and its allies would announce deeper output cuts.

By the end of the week, conditions were looking a little rosier for the bulls. The U.S. reported better-than-expected jobs data and China was saying it was pleased with the progress of the trade negotiations.

Last week, December WTI crude oil settled at $56.20, down $0.46 or -0.81% and January Brent crude oil finished at $61.69, down -$0.04 or -0.06%.

U.S. Energy Information Administration Weekly Inventories Report

Crude oil inventories rose by 5.7 million barrels in the week to October 25, the U.S. Energy Information Administration (EIA) said on Wednesday, compared with analyst expectations for an increase of 494,000 barrels.

On Tuesday, the American Petroleum Institute (API) reported a decline of 708,000 barrels, raising hopes that official figures would also show a fall.

Crude stocks at the Cushing, Oklahoma futures delivery hub rose for a fourth straight week, gaining 1.6 million barrels last week, the EIA said.

However, gasoline and distillate inventories extended their declines even as refiners ramped up production, it said.

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China Manufacturing Sector Weakens

China’s manufacturing sector continued to dwell in the doldrums in October, with sentiment among factory operators remaining in negative territory for the sixth month in row, the South China Morning Post reported on Thursday.

The manufacturing purchasing managers’ index (PMI), released by the National Bureau of Statistics (NBS) on Thursday, stood at 49.3 in October, down from 49.8 in September and below the expectation in a Bloomberg survey of analysts for an unchanged reading. The October figure was the lowest since hitting 49.2 in February.

OPEC, Russia and Output Cut Concerns

Some of the selling pressure earlier in the week may have been caused by conflicting reports that Saudi Arabia is willing to cut deeper at the December OPEC meeting, while Russia continues to suggest indirectly that it might not be interested in doing more. The decision is expected to be made when all parties meet on December 5-6, however, without Russia’s support, the chances of reaching an agreement have dropped considerably.

Week Ends with Bullish News

WTI and Brent crude oil were underpinned on Friday as investor sentiment got a lift from much stronger-than-expected U.S. Jobs data. The U.S. economy added 128,000 jobs in October, the Labor Department said. Economists were looking for a gain of 75,000 jobs for the previous month. Job growth data for September and August was also revised substantially higher. Average hourly earnings rose and the unemployment rate inched higher as expected.

China also helped drive prices sharply higher late Friday when it said it reached a consensus in principle with the U.S. during trade talks this week. The U.S. Trade Representative’s office also said Robert Lighthizer and Treasury Secretary Steven Mnuchin made “progress in a variety of areas and are in the process of resolving outstanding issues.”

Weekly Forecast

We suspect the next major move will be news driven. We also think that any positive developments from OPEC regarding deeper production cuts will underpin prices, and the announcement of a partial trade deal between the United States and China will be the catalyst that triggers the breakout.

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