US - Sino Trade Talks Boosting Oil Outlook
Benchmark WTI prices have been supported over the week, marking a pause in the declines seen over the prior month. Since bottoming out around the $51 mark, WTI Crude has traded back up to $55. A key factor in the current stabilisation in WTI prices is the better expectations around the ongoing US – Sino trade negotiations.
Following the 13th round of face-to-face trade talks held on October 10th it was announced that a deal had been agreed between the two countries. However, following the announcement from President Trump, it was reported that China was not yet ready to sign the deal. However, further to conversations between US and Chinese officials on Monday, the market is expecting the deal to be signed at the APEC meeting in November. The US Treasury Secretary and Trade Representative are due to hold a further round of talks with Chinese officials on Friday. The market will be closely monitoring headlines around these talks which could see further upside in WTI prices if the talks are positive.
The deterioration in global trading conditions has been a major negative force for oil prices this year. Global manufacturing activity has been hard hit by the US-China trade war with readings from the EU, UK and US showing severe weakness. The IMF recently warned, in its latest World Economic Outlook, that world growth is due to fall to 3% this year, marking its lowest reading since the Global Financial Crisis.
As well as global trade activity slowing down, which is dragging down demand for oil, the EIA has warned that US crude production is due to continue increasing, pushing the market towards oversupply. As a result of expectations of further weakness in global oil demand, OPEC has extended its production cuts and is expected to announce further measures at the next meeting in December.
In light of this dynamic, the outcome of these US -Sino trade talks will be very important for oil traders. If talks continue and the US and China do go ahead and sign the interim trade deal at the upcoming APEC meeting, this will change the demand outlook for oil and should allow for a quicker recovery in oil prices. However, it talks stumble again this will likely be heavily bearish for oil, further subduing expectations for global trade.
EIA Reports Inventories Decline
In its latest weekly inventories report, the EIA noted that US crude inventories actually fell last week, marking the first decline in oil inventories in six weeks. The EIA said that US crude stores were down by 1.7 million barrels over the week ending October 18th despite forecasts for a 4.7 million barrel increase. Gasoline and Distillate stores were also lower on the week alongside a sharp fall in US crude imports.
Technical & Trade Views
WTI Crude (Neutral, bearish below $55, bullish above)
WTI From a technical and trade perspective. Longer term VWAP remains negative suggesting the risk of further losses. In line with longer-term VWAP I will be looking for a break of the monthly S1 at $50 where we also have a few big previous swing lows. Once below here, any retest of the level should offer further short opportunities moving down towards $45. On the other hand, if we break back above the monthly pivot at $56.67 a retest of the level from above should find support.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!