Crude Prices Up On China Talks Progress - But Economic Worries Still Limit Gains

Meanwhile, Russia predicts the decline of U.S. shale: File Image/PixaBay

A departure in the crude trading norm occurred on Tuesday due to a confluence of promising news that even die-hard bears couldn't ignore: progress in the U.S./China talks combined with the Organization of the Petroleum Exporting Countries (OPEC) reportedly considering deeper production cuts resulted in a price rise of over 1 percent.

Brent settled up 74 cents, or 1.3 percent, at $59.70 per barrel, while West Texas Intermediate was 85 cents, or 1.6 percent, higher at $54.16 per barrel.

Traders reacted positively to Le Yucheng, vice foreign minister for China, stating that Washington and Beijing have made progress in trade talks and problems can be resolved as long as both sides respect each other.

They also responded to sources from OPEC telling media that the cartel and its allies will consider whether to deepen cuts to crude supply when they next meet in December due to worries about weak demand growth in 2020.

But observers noted that Tuesday's gains were capped by a warning issued last week by the International Monetary Fund that fallout from the U.S.-China trade war and other trade disputes would slow global growth in 2019 to 3.0 percent, the weakest in a decade; also impacting trading was the American Petroleum Institute disclosing that U.S. crude stockpiles rose 4.5 million barrels in the week ended October 18.

Warren Patterson, analyst at ING, remarked, "These more visible stock builds, along with demand concerns continuing to linger, suggest it is becoming increasingly more difficult to see a sustained rally in prices ahead of the OPEC+ meeting in early December."

With so much attention focused on the crude market in the near term, relatively absent in Tuesday's news roundup was a forecast of how the market could fundamentally shift over the longer term - except for one provided by Alexander Novak, energy minister for Russia.

Novak told media that U.S. oil production - the source of so much angst for many traders - is likely to peak in the next few years because current petroleum prices are capping the pace of expansion: "We are seeing declining activity in U.S. shale oil production; though there have been gains, these are lower than in previous years....this is a trend."

Novak added, "It is likely that in the near future, if the forecasts come to fruition, we will see a plateau in [U.S. oil] production within the next few years."