Oil rises on trade talk optimism

Oil climbed as the Trump administration signaled optimism a trade deal may be reached with China and an industry report indicated robust U.S. fuel demand.

Futures in New York rose as much as 1.9 percent Wednesday. U.S. President Donald Trump believes “there is a good possibility that we can make a deal,” White House economic adviser Larry Kudlow said. Trump is scheduled to meet his Chinese counterpart Xi Jinping on the sidelines of the G-20 summit in Argentina this week. The American Petroleum Institute was said to report a 2.6 million-barrel drop in gasoline inventories last week.

Crude tumbled about 20 percent this month as America’s surprise sanction waivers for Iranian oil and rising output in the U.S., Saudi Arabia and Russia raised concern over a supply glut, while the U.S.-China trade tensions clouded the outlook for energy demand. Traders also await another widely-expected meeting in Argentina between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman before OPEC and its allies meet next week to discuss output policy in Vienna.

Kudlow’s comments “spurred optimism U.S.-China trade talks may advance in the right direction before tensions escalate to a point where additional tariffs will be imposed,” Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp., said by phone from Tokyo. At the OPEC+ meeting, “they will probably agree on production cuts, which may be about about 1 million barrels a day.”

West Texas Intermediate for January delivery rose as much as $1 to $52.56 a barrel on the New York Mercantile Exchange and traded at $52.32 at 4:26 p.m. in Tokyo. The contract fell 7 cents to $51.56 on Tuesday. The U.S. benchmark’s 14-day Relative Strength Index remains in oversold territory. Total volume traded was 39 percent above the 100-day average.

Brent for January settlement added 81 cents to $61.02 a barrel on London’s ICE Futures Europe exchange. The contract dropped 27 cents to $60.21 on Tuesday. The global benchmark traded at an $8.71 premium to WTI.

Despite market expectations for a breakthrough in trade talks, Kudlow warned the U.S. is ready to impose more tariffs if the Trump-Xi meeting doesn’t yield progress. Trump will likely push forward with plans to increase tariffs on $200 billion of Chinese goods, he said in an interview with the Wall Street Journal published Monday.

Trump’s renewed criticism of Federal Reserve Chairman Jerome Powell also spurred speculation the U.S. central bank may put on hold its interest-rate increases, Nogami said. The Bloomberg Dollar Spot Index has rallied to near the highest level in 1 1/2 years amid expectations for a hike in U.S. rates. A rise in the greenback diminishes the appeal of dollar-denominated commodities like crude.

While the API report points to declining U.S. gasoline inventories, it also showed crude stockpiles rose 3.45 million barrels last week. If replicated in government data due Wednesday, it will be a third consecutive weekly drop in gasoline inventories and a 10th weekly gain in crude stockpiles, the longest streak since Nov. 2015.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell