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James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading at their highest levels in three months on Friday in response to the news that the United States and China had reached a “phase one” trade agreement. Furthermore, Britain’s general election result appears to have raised the spirits of oil traders.

At 11:10 GMT, February WTI crude oil is trading $59.78, up $0.72 or +1.22% and February Brent crude oil is at $65.13, up $0.93 or 1.45%.

Trade Deal Terms Set

The Trump administration has reached a phase one trade deal with China in principle, pending approval from President Donald Trump, three sources close to the talks told CNBC on Thursday.

Trump met with top advisors on Thursday about trade with China and whether to delay the next round of U.S. tariffs. Duties of 15%, set to take effect Sunday, would affect about $160 billion in Chinese-made goods including toys, computers, phones and clothing, according to CNBC.

The White House has offered to scrap those duties and slash some existing tariffs in half, two sources told CNBC. The U.S. proposed cutting existing duties on $360 billion in Chinese products by 50%, CNBC wrote.

Trump has focused on the U.S. agricultural products China will purchase as part of the deal, one of the sources told CNBC. China had committed to buying about $40 billion in goods, while the president wanted the figure closer to $50 billion.

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Weaker U.S. Dollar Increases Demand for Dollar-Denominated Crude Oil

The U.S. Dollar has plunged against a basket of currencies this week as investors reacted to three major events:  the Federal Reserve policy statement, the U.S-China trade deal and the outcome of the U.K. elections. A weaker U.S. Dollar tends to make dollar-denominated crude oil more attractive to foreign buyers.

The Fed said it would not raise interest rates in 2020, which weakened demand for the U.S. Dollar. The U.S.-China trade deal removed risk from the market, encouraging investors to dump U.S. Dollars bought as a hedge. Finally, the positive outlook in the U.K. elections also helped lift some risk factors, while driving up the British Pound against the U.S. Dollar.

Daily Forecast

We expect the bullish hedge funds to feed on the positive developments and drive WTI and Brent crude oil prices higher.

However, we remain cautious since President Trump has not yet approved the deal with China, nor has there been an official announcement that the December 15 tariffs have been delayed.

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