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James Hyerczyk
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WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures posted a strong performance last week, helped by positive developments over a trade deal that seemed to offset worries about demand growth, increasing U.S. supply and the potential for deeper output cuts from OPEC.

The primarily catalyst behind the price action this week was U.S.-China trade relations. Optimism over the progress of the negotiations drove prices higher early in the week, but uncertainty over the timing of the signing of a trade deal encouraged long investors to book profits and trim positions later in the week. However, the markets were able to recover at the end of the week after a report said the U.S. and China had agreed to rollback tariffs.

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Last week, December WTI crude oil settled at $57.24, up $1.04 or +1.85% and January Brent crude oil finished at $62.51, up $0.82 or +1.31%.

Trade Deal News Causing Volatility

Crude oil seems to be underpinned by the fact that the U.S. and China are still talking. The headlines, however, are causing volatile price swings.

On Thursday, China and the U.S. announced they would rollback tariffs. This temporarily raised the chances of a near-term deal, sending crude oil prices higher. However, President Trump said on Friday he hasn’t agreed to a rollback.

WTI and Brent crude oil sold-off sharply on Wednesday after a report that a meeting between U.S. President Donald Trump and Chinese President Xi Jinping to sign an interim deal could be delayed until December as talks continue over terms and venue, a senior official of the Trump administration told Reuters on Wednesday.

It was still possible the “phase one” agreement aimed at ending a damaging trade war would not be reached, but a deal was more likely than not, the official said on condition of anonymity.

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Rising Supply Issues

Crude oil was also pressured by the news that U.S. stockpiles rose 7.9 million barrels the week-ending November 1 as refiners cut output and exports fell, the Energy Information Administration (EIA) said on Wednesday. Traders were looking for an increase of 1.5 million barrels.

Helping to ease the pressure on prices was the news that gasoline and distillate inventories dropped 2.8 million barrels and by 622,000 barrels respectively.

Stocks at the Cushing, Oklahoma, the delivery hub for WTI, rose by 1.7 million barrels, the EIA said.

Doubts over Potential OPEC Production Cuts

Weeks ago, OPEC and its allies suggested that deeper production cuts could be coming in an effort to offset the impact of falling demand. However, this week’s remarks from an OPEC official are casting doubts on whether the cartel and its friends will have to cut output.

OPEC Secretary-General Mohammad Barkindo said this week that he was more optimistic about the outlook for 2020 because of potentially positive developments on trade disputes, appearing to downplay any need to cut output more deeply.

Weekly Forecast

As the markets approach a key resistance area on the weekly charts, crude oil traders are facing a wall of uncertainty. One concern is the need for continued progress toward the “Phase One” partial trade agreement. If the date and the venue of the signing are announced then prices could spike higher. OPEC reiterating that output cuts are still on the table will be additional bullish news.

However, gains could be limited if data from the American Petroleum Institute (API) and especially the U.S. Energy Information Administration (EIA) on Wednesday shows another increase in U.S. supply.

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