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James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Thursday as investors book profits and trim positions ahead of this weekend’s meeting between U.S. President Trump and Chinese President Xi Jinping at the G-20 summit in Osaka, Japan. General uncertainty ahead of an OPEC meeting is also encouraging investors to lighten up a little on the long-side.

At 08:38 GMT, August WTI crude oil is trading $58.94, down $0.44 or -0.72% and September Brent futures are at $65.13, down $0.56 or -0.85%.

Trump-Xi Meeting Moves to Forefront

While some may argue that the Middle East tensions between the United States and Iran are the catalysts behind the price action this week, I have to say that that they are more likely underpinning the markets rather than driving prices higher this week. Tensions have eased this week, but not enough to disappear. However, they should remain a safety net for investors looking to play the long-side of the market. This issue is important for the supply side of the equation.

The key issue affecting the demand side is the meeting between Trump and Xi. Demand is the issue because the inability to make a trade deal, or an escalation of the U.S. tariffs on China could lead to a global recession and this likely means lower demand for crude oil.

Trump keeps talking like he’s not expecting much from the meeting. Some feel that all he wants to do is take the temperature of the Chinese government. This has created an air of uncertainty. Trump has even said that he’ll consider an additional $300 billion of new tariffs on China after the meeting. In the meantime, Treasury Secretary Mnuchin told CNBC on Wednesday that the two countries were very close to a deal in May and just have to get back to the negotiations table.

Trump and Xi surprised the markets in early December by announcing the start of trade talks. They may still have this card of their sleeves when they meet again on Saturday. And that would be good for oil prices because it would, at least temporarily, ease some of the worries over future demand.


OPEC Meeting

This weekend’s meeting between OPEC and its allies hasn’t been in the news much lately because investors believe the deal to cut production, trim excessive oil inventories and stabilize prices is likely to be extended until the end of the year.

This is bullish for prices because it reduces supply. We already know it works and has been working since January 1. So this is another event that has the capability of underpinning prices.

Other News

There was more bullish supply news on Wednesday. The U.S. Energy Information Administration (EIA) announced U.S. crude stockpiles fell 12.8 million barrels the week-ending June 21. Traders were looking for a decrease of 2.5 million barrels.

Daily Forecast

This week’s fundamentals have been bullish and traders have responded accordingly. However, the meeting between the Trump and Xi is an uncertainty and investors tend to sell when there is uncertainty. I don’t expect to see heavy shorting until there is a bearish surprise, but given the recent run-up in prices, it seems reasonable that investors may feel the need to take profits or trim long positions.

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