Oil Price Fundamental Daily Forecast – Trade Deal Worries, Production Cut Compliance Concerns Capping Gains

Trade deal worries and concerns over compliance with the OPEC+ production cuts seem to be putting a lid on crude oil prices. We may need a positive breakthrough in the trade talks to launch this market higher.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading flat on Tuesday after recovering from earlier losses. The early selling pressure was fueled by worries over slowing demand, which offset Friday’s OPEC deal that deepened production cuts in an effort to stabilize prices and trim global supply.

At 10:50 GMT, January WTI crude oil is trading $58.06, up $0.04 or +0.08% and February Brent crude oil is at $64.31, up $0.06 or +0.08%.

Drop in Chinese Exports Weighs on Prices

Oil prices fell on Monday after data showed Chinese exports declined for a fourth straight month, sending jitters through a market already concerned about damage to global demand by the trade war between Washington and Beijing.

Exports from China in November fell 1.1% from a year earlier, coming in below a Reuters estimate for a 1% rise.

Oil Traders Concerned about Drop in China PPI

While Chinese consumer inflation jumped in November, according to data released by the country’s National Bureau of Statistics on Tuesday, producer prices in China declined in the same month, with the Producer Price Index (PPI) for November falling 1.4% year-on-year.

Commenting on the PPI decline, Pearl Bridge Partners’ Andrew Sullivan said:  “The problem that they have certainly…is the fact that this is very much, you know, a sign of global demand rather than just the demand within China itself.”

Impact of OPEC+ Deal

Although the OPEC+ decision to deepen their existing production cuts by 500,000 barrels per day is being credited for driving prices higher last week, there has been no follow-through in prices to the upside. This is because the success of the strategy depends on participant compliance with the cuts, and traders still aren’t sure if everyone is on board to reduce output.

Gazprom Neft CEO Alexander Dyukov said on Tuesday a decision by OPEC and its allies to cut output would help support oil prices at $55 – 65 per barrel in the first quarter.

However, Bank of America Merrill Lynch said in a note that strong compliance with the OPEC+ along with positive economic developments such as a U.S.-China trade deal could push Brent to $70 a barrel before the second quarter of 2020.

Daily Forecast

Trade deal worries and concerns over compliance with the OPEC+ production cuts seem to be putting a lid on crude oil prices. We may need a positive breakthrough in the trade talks to launch this market higher.

In the meantime, the price action the rest of the week may be dictated by Tuesday’s American Petroleum Institute weekly inventories report and Wednesday’s report from the Energy Information Administration (EIA).

According to Reuters, U.S. crude oil inventories were expected to have dipped last week, while stocks of refined products were seen higher with gasoline stocks set to rise for the fifth straight week.

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