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James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Friday, keeping the markets on track for solid weekly gains. Underpinning the markets for the past two weeks has been the start of the OPEC-led production cuts. Helping to drive the momentum this week has been hopes the United States and China may soon reach a preliminary deal to end their on-going trade dispute.

At 0917 GMT, March WTI crude oil is trading $53.54, up $0.63 or +1.17% and March Brent crude oil is at $62.32, up $0.64 or +1.04%.

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If the upside momentum continues into the close then WTI and Brent should post nearly 10 percent gains for the week.

Bullish Argument

OPEC and its major ally Russia began reducing output by 1.2 million barrels per day on January 1. It they maintain their discipline, this move should trim the global supply glut and stabilize prices.

Earlier in the week, the US and China ended three-days of constructive trade talks which were productive enough to lead to the scheduling of further negotiations later this month. This news has created enough optimism to drive short-sellers out of the market.


Bearish Argument

The bearish traders are saying that profit-taking and short-covering have been driving prices higher rather than aggressive counter-trend buyers.

They are also expressing concerns over the health of the global economy especially in China where growth in 2018 and 2019 is expected to be the lowest since 1990.

Furthermore, most analysts have downgraded their global economic growth forecasts below 3 percent for 2019.

Finally, the biggest concern for the bulls is increasing U.S. production, which is expected to climb above 12 million bpd this month.


Crude oil is being driven higher by momentum and short-covering. Given the overall supply and demand balance, the market will continue to move higher until it reaches price neutral territory.

The short-covering is likely being driven by fear and inflation. Most of this is on hope because the US and China are talking. However, unless the economic growth numbers in China start to get better, gains are likely to be limited.

The headlines want to make traders think that a deal with China will make all the bearish issues go away, but that won’t stop the US from producing. Furthermore, one slip up from the OPEC-led cartel and prices will weaken.

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