Oil Price Fundamental Daily Forecast – Steady as Weak Demand Outlook Offsets Trade Deal Optimism

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are posting a two-sided trade early Tuesday in reaction to mixed commentary from U.S. government officials regarding the progress of the trade talks between the United States and China.

President Donald Trump told reporters on Monday that he was hoping to sign a trade deal with China next month at a summit in Chile, “or whenever that might be.”

Economic adviser Larry Kudlow, said, “I really like what they’re saying on the other side.” If current talks go well, he said, Trump might put off imposing more tariffs planned for December.

Those two comments were enough to trigger a small intraday rally on Monday. However, another official helped keep a lid on that rally.

Commerce Secretary Wilbur Ross was more cautious, saying that the timing was less important than the contents of any deal.

“It doesn’t have to be in November,” Ross told Fox News. “The key thing is to get everything right that we do sign.”

At 08:48 GMT, December WTI crude oil is at $53.59, up $0.08 or +0.13%. December Brent crude oil is at $59.19, up $0.23 or +0.37%.

Government data shows professional traders have built relatively large short positions since the attacks on Saudi Arabia in mid-September. This suggests they are betting on the trade dispute between the United States and China to continue into 2020 despite expectations the two sides will announce the signing of at least a partial deal as early as next month.

According to the Commodity Futures Trading Commission (CFTC), speculators have almost tripled short positions in U.S. crude futures since mid-September.

Short-selling of WTI has climbed to 114,709 futures and options, from just 39,948 in the week-ended September 17, according to the CFTC data. Net-long positions, or the difference between the long and short positions, shrank 8.8%.

Daily Forecast

In the short-run, a partial trade deal could spook a few of the weaker shorts into covering their positions, however, unless the U.S. and China lift their current tariffs and the U.S. agrees to postpone the December tariffs, the global economy is going to have a hard time recovering. This should keep the pressure on demand.

It seems the only way to stabilize prices is for OPEC and its allies to reduce output to meet the lower demand. Otherwise, prices are going to remain under pressure. OPEC and friends will make this decision at its December meeting.

In other news, at 20:30 on Tuesday, the American Petroleum Institute (API) will release its latest weekly inventories report. It is expected to show U.S. stockpiles increased for a sixth straight week, while distillates and gasoline stocks likely fell in the week to October 18.