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James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading lower on Monday after posting a steady rise earlier in the session. In going through our checklist, we see the USD/JPY higher, Treasury yields rising and stocks firmer. Therefore, we have to conclude that the weakness in the crude oil market is not being generated by trade deal worries.

At 12:16 GMT, JanuaryWTI crude oil is  at $57.63, down $0.14 or -0.26% and January Brent crude oil is at $63.32, down $0.07 or -0.11%.

We suspect the weakness is being fueled by concerns over an extended cut in production by OPEC and its allies at their December 5-6 meeting in Vienna. This makes sense since there always seems to be uncertainty heading into this meeting.

OPEC+ Deal

Prices rallied to their highest level since late September on Thursday after Reuters reported that the Organization of the Petroleum Exporting Countries (OPEC) and Russia are likely to extend existing production cuts by another three months to mid-2020 when they meet over December 5-6.

The group is expected to emphasize the need for stricter deal compliance from the likes of Iraq and Nigeria.

“A disciplined approach from Iraq and Nigeria should shave off another 300-400,000 barrel per day (bpd) from the group’s production level leading to a balanced market in the first half of 2020 and to a possible supply deficit in the second half,” said oil brokerage PVM.

The current agreement is for a production cut of 1.2 million bpd until the end of March.

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Daily Forecast

Worries over the deal to extend the production cuts and Friday’s technical reversal to the downside are combining to put pressure on crude oil prices today. Last week’s whipsaw price action probably was a little excessive to the long side so we’re likely due for a short-term break into a value area.

Losses are likely to be underpinned by renewed optimism over a trade deal between the U.S. and China after President Trump said a deal is close and Chinese President Xi Jinping on Friday said his country wants to work out an initial trade deal.

However, there is still uncertainty over the deal since China is upset that the U.S. hasn’t agreed to rollback tariffs and Xi saying he has been trying to avoid a trade war but is not afraid to retaliate when necessary.

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