Oil Price Fundamental Daily Forecast – Trade Deal Progress Encouraging Speculative Buying, Short-Covering

The current price action suggests shorts are covering as speculative buyers bet aggressively that even a small deal between the United States and China will improve the current dismal crude oil demand picture.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading steady-to-better on Tuesday as short-sellers continue to cover positions on the hopes of a trade deal between the United States and China. Traders are also taking positions ahead of today’s American Petroleum Institute (API) weekly inventories report that may show a build in crude oil, but a draw down in refined products.

At 11:56 GMT, December WTI crude oil is at $56.91, up $0.37 or +0.66% and January Brent crude oil is at $62.65, up $0.52 or +0.83%.

U.S.-China Trade Progress

A potential U.S.-China trade deal continues to underpin WTI and Brent crude while chasing out some of the weaker shorts. On Friday, China said that it had reached a consensus with the U.S. in principle after a phone call among high-level trade negotiators last week. Meanwhile, the White House added in a statement Friday that the trade representatives “made progress in a variety of areas and are in the process of resolving outstanding issues. Discussions will continue at the deputy level.”

Chinese President Xi Jinping and U.S. President Donald Trump have been in continuous touch through “various means,” China said on Monday, when asked when and where the two leaders might meet to sign a trade deal.

Deeper OPEC+ Output Cuts

Since early October, prices have been supported by the possibility of deeper output cuts by OPEC and its allies amid a weaker 2020 outlook.

A deeper cut in oil supplies is among options for OPEC and its allies to consider in December, its secretary general said on October 10, as the producer group’s forecasts pointed to slower global growth and lower demand next year.

OPEC, Russia and other producers, an alliance know as OPEC+, have since January implemented a deal to cut oil output by 1.2 million barrels per day to support the market. The pact runs to March 2020 and the producers meet to set policy on December 5-6.

“The conference will take appropriate, strong, positive decisions that will set us on the path of heightened and sustained stability for 2020,” Mohammad Barkindo told reporters at a briefing in London.

“All options are open,” he said, when asked about the prospect of a deeper supply cut.”

Daily Forecast

The current price action suggests shorts are covering as speculative buyers bet aggressively that even a small deal between the United States and China will improve the current dismal crude oil demand picture.

Later today at 21:30 GMT, the American Petroleum Institute (API) will release its weekly inventories report. It is expected to show an 800,000-barrel build.

For December WTI crude oil, a sustained move over $56.82 today could trigger an acceleration to the upside with the next potential target $58.21. A failure to overcome the resistance at $56.82 could lead to profit-taking and a pullback into at least $55.97.

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