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James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures settled mixed last week with U.S. crude edging slightly lower and Brent posting a marginal gain. The price action was extremely volatile with both futures contracts posting wicked, two-sided trading ranges.

Early in the week, crude oil futures were down about 5%, but rallied over 7% over a two-day period to reach their highest levels since mid-September. However, on Friday, prices tumbled on profit-taking after hitting a two-month high as concerns over U.S.-China trade talks, overshadowed expectations of an extension to OPEC+ production cuts.

January WTI crude oil settled at $57.77, down $0.06 or -0.10% and January Brent finished the week at $63.39, up $0.09 or +0.14%.

Last week’s whip-saw price action was fueled by renewed concerns over a U.S.-China trade deal, which weighed on demand growth, a bearish American Petroleum Institute (API) weekly inventories report, followed by a bullish U.S. Energy Information Administration (EIA) weekly inventories report, and a jump in expectations that OPEC and its allies would extend their production cut program.

US-China Trade Deal Confusion

Risk sentiment seesawed all week amid mixed signals on whether Washington and Beijing can work out at least a partial deal to end trade-related tensions between the world’s two largest economies.

Earlier in the week, President Trump said the United States would raise tariffs on Chinese imports if no deal is reached with Beijing to end the trade war.

On Thursday after a report in the South China Morning Post said the United States could delay tariffs on Chinese imports even if a deal has not been reached by December 15, when tariffs kick in on goods including electronics and Christmas decorations.

Separately, Chinese Vice Premier Liu He, also the chief trade negotiator, said he was “cautiously optimistic” on a phase one deal, according to a report by Bloomberg.

At the end of the week, traders didn’t know if the talks had reached a stalemate over the rollback of tariffs, or whether the U.S. had accepted an invitation from China to resume face-to-face talks in Beijing.


U.S. Energy Information Administration Weekly Inventories Report

On Wednesday, the EIA reported U.S. crude stocks rose by 1.4 million barrels in the week to November 15, compared with expectations for an increase of 1.5 million barrels. It was also significantly lower than the 6 million barrel gain that the American Petroleum Institute (API) data showed late Tuesday.

Crude stocks at the U.S. futures delivery hub of Cushing, Oklahoma fell by 2.3 million barrels. The EIA also reported a 1.9-million barrel build in gasoline inventories for the week before, and a decline of 2.5 million barrels in distillate fuel inventories.

Late Tuesday, the API reported a crude oil inventory build of 5.954 million barrels for the week-ending November 14. Traders were looking for a 1.543 million barrel build.

While most traders agreed that the EIA numbers matched the estimates, the big draw at Cushing lit the fuse for a huge short-covering rally.

Possible OPEC+ Production Cuts Extension

Crude oil futures surged more than 2% on Thursday following a Reuters report that OPEC and its allies are likely to extend output cuts until mid-2020. There was no mention of whether they would deepen the cuts in production. Nonetheless, the price action clearly indicates that traders liked the news. The decision will be made at the OPEC meeting on December 5-6.

Weekly Forecast

Last week’s price action was definitely an eye-opener with buyers driven out of the market on Monday and Tuesday and short-sellers getting shaken out on Wednesday through Friday.

The huge 7% recovery late in the week was impressive enough to give the market an upside bias at the start of this week, however, Friday’s unexpected reversal to the downside should have sent a signal to traders to be careful about chasing prices higher in this uncertain trading environment.

It’s a holiday week in the U.S. so look for light volume. Bullish factors will include upbeat comments on a trade deal and OPEC+ production cuts. Bearish factors will be continued worries about U.S.-China trade relations.

Of course, the American Petroleum Institute (API) weekly inventories report on Tuesday could cause some volatility. However, as we saw last week, the U.S. Energy Information Administration (EIA) weekly inventories report on Wednesday will be most important.

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