Oil Price Fundamental Daily Forecast – Traders Not Too Impressed by Partial Trade Deal

U.S. West Texas Intermediate and international crude oil futures are trading sharply lower early Monday as traders question the materiality of the partial trade deal agreed upon by the United States and China on Friday. While President Trump is touting the phase one trade as “very substantial”, analysts are saying it appears to be more of a “temporary truce” than a real deal.

At 08:01 GMT, December WTI crude oil is trading $54.10, down $0.68 or -1.24% and December Brent crude oil is a $59.72, down $0.79 or -1.31%.

Concerns over the partial trade deal were actually revealed late Friday when traders showed little reaction to the announcement. Furthermore, the markets were primarily supported by the news that an Iranian oil tanker had been attacked by two rockets off Saudi Arabia’s coast in the Red Sea.

Prices were also being supported by comments from Saudi Arabia on Thursday, which indicated OPEC and its allies would discuss reducing production further in the wake of lower demand growth due to the global economic slowdown.

Today’s early weakness may have been slowed by a report that showed China’s demand for oil remains strong, however, with its September imports reflecting a 10.8% rise from a year earlier as refiners ramped up output amid stable profit margins and solid fuel demand.

Daily Forecast

Today’s early weakness suggests the trade deal may have already been priced into the market and without any fresh developments, traders are reluctant to drive prices beyond Friday’s high.

Furthermore, some traders feel the partial deal didn’t go far enough to reduce or eliminate the tariffs that are currently slowing global economic growth and consequently demand growth.

“We think the ‘substantial’ first-stage deal made by Trump with China looks more like a truce than a genuine deal,” said Christiaan Tuntono, senior economist for Asia Pacific at Allianz Global Investors.

Mizuho Bank’s Head of Economics and Strategy Vishnu Varathan told CNBC on Monday:  In terms of the real thorny issues, none of that is thrashed out.”

“So the ‘substantial’ is for the low hanging fruits- it’s a bit lower than the low hanging fruits actually. And we haven’t seen anything of real material yet,” he added.

Little Reaction to Rocket Attack on Tanker

The markets are also showing little reaction to the rocket attacks on the Iranian tanker on Friday. First of all, there was little oil spilled. Secondly, no one anticipates an escalation of tensions in the Middle East due to military action by the U.S. Many believe a war wouldn’t solve anything.

Geopolitics are not likely to lead to a sustainable rally unless there is an actual supply disruption.