Oil Price Fundamental Daily Forecast – Next Move Hinges on Continuation of US-China Trade Negotiations

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly higher early Wednesday on the hopes that the recently proposed Chinese stimulus plan help revive the economy and leads to increased demand. So far, however, the move doesn’t show enough strength to erase yesterday’s 2-percent decline.

At 0717 GMT, March WTI crude oil is trading $53.19, up $0.19 or +0.34% and March Brent crude oil is at $61.77, up $0.27 or +0.44%.

Underpinning the market recently has been the OPEC-led plan to cut production, trim the global supply glut and stabilize prices. Prices have also been boosted by the hope that the U.S. and China were coming close to a trade deal. This hope was supported by reports that both the United States and China had offered concessions to grease the negotiations. Traders were also banking on the optimism being created by the planned meeting between higher level U.S. and China negotiators in Washington on January 30-31. However, the meeting is in now in question, which could put renewed pressure on crude oil prices.

Crude oil traders are following up on an a report from the Financial Times which said the U.S. had canceled a trade meeting with Chinese officials, scheduled for later this month. The report was later confirmed by a source familiar with the situation to CNBC’s Kayla Tausche. The source claimed the meeting was canceled due to outstanding disagreements between the two sides over the enforcement of intellectual property rules.

A White House spokesman told CNBC that “the teams remain in touch in preparation for high level talks with Vice Premier Liu He at the end of this month.” The Treasury Department and the U.S. trade representative’s office did not respond to requests for comment. Furthermore, White House economic advisor Larry Kudlow denied that an official meeting had been canceled.

Forecast

Whether the meeting between high ranking U.S and Chinese officials is on or off will likely influence the direction of crude oil this week. Prices are likely to plunge if the meeting is called off. Prices will hold steady if the meeting is still on.

Traders will also be paying closer attention to reports that show economic growth because slowing economic growth has become the major theme driving the price action. Growth is not only slowing in China, but in Japan and Europe.

China’s stimulus plan may provide some temporary relief, but it’s going to take the end of the trade dispute to prevent a major economic downturn, and that won’t be good for oil prices.