Market Caught Between OPEC Cuts & Trade Deal Uncertainty

CFTC COT data showed that net long positions in WTI crude declined by 42,901 contracts last week to sit at a total position of 428,035 contracts. The reduction in upside exposure in WTI prices likely reflects the diluted global investors appetite last week on concerns over the US-Sino trade deal negotiations.

Benchmark WTI prices have been caught in a struggle over the last week between ongoing fluctuations in the US-Sino trade talks and the positive impact of the recent OPEC+ cuts. Meeting last week, OPEC+ (OPEC plus non-OPEC producers headed by Russia) went public with plans to further reduce daily WTI output by -500,000 barrels. This new level of cuts, which goes live as of this month, will run until the end of Q1 2020 initially, subject to further revision. The announcement had a positive impact on prices over the last and has gone a long way to helping mitigate some of the more bearish elements dominating the news wires.

Over the last week, expectations around a US-Sino trade agreement have been fluctuating wildly. With the market approaching the December 15th tariffs deadline, WTI traders still do not know if the US is planning to go live with the planned round of 15% tariffs on nearly $160 billion worth of Chinese imports to the US. With a deal yet to be signed, the market had been expecting the tariffs to be activated, in line with recent guidance given by the US administration. However, in recent days, reports have highlighted that, subject to ongoing negotiations, these tariffs might now be cancelled.

Fresh EIA Inventories Surplus

If these tariffs are postponed, allowing negotiations to continue as they are, this should help keep the bullish bias intact for WTI. The tariffs have taken on extra market attention this week as the latest data from the EIA points to growing US inventory levels. The EIA reported this week that WTI levels rose by 5.4 million barrels last week. The EIA has also updated its forecasts for US crude supply next year, which have seen further upward revisions.

The data from the EIA highlights the risks to the WTI market here. The US-Sino trade negotiations continue to be the key priority and if further tariffs are announced this weekend, and talks hit a wall, the repercussions could be extremely bearish for WTI.

Federal Reserve Holds Rates

At its December rate decision last night, the Federal Reserve kept its headline policy rate unchanged. The Greenback was lower despite a relatively unchanged statement as the Fed reaffirmed the message that it will continue to buy treasuries into 2020. While much of the statement retained a fairly neutral outlook on the economy, the market somewhat disappointed by news of the continues treasuries purchases as well as a lack of any hawkish comments.

Technical & Trade Views

WTI Crude (Bullish, above $55.96) 

WTI From a technical and trade perspective. WTI continues to consolidate near recent highs. While we hold above the monthly pivot at $55.96, bias remains for continued upside, in line with longer-term VWAP remaining positive, with the year-to-date highs the next key resistance to monitor.

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.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% and 71% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.