Crude Down Again As Impatience For U.S./China Trade Deal Grows

But Kemp argues that price risks are shifting to the upside

Despite fresh data showing that U.S. crude inventories at Cushing, Oklahoma fell by about 1.2 million barrels in the week to November 8, traders impatient for an outcome to the trade negotiations between the U.S. and China caused oil prices on Tuesday to drop once again, although minimally.

Brent fell 8 cents to settle at $62.10 per barrel, and West Texas Intermediate dropped 8 cents to settle at $56.80 per barrel.

Given that inventory rates was the driver of trading on Tuesday, prices may drop further in coming sessions if a speculative forecast ahead of government data due on Thursday proves correct and stockpiles across the U.S. rose last week for a third week in a row.

Still, traders have a lot to be bullish about: all indications are that the dispute between the U.S. and China will soon be resolved, and many analysts think the Organization of the Petroleum Exporting Countries (OPEC) will extend its output caps and perhaps even deepen them when the cartel meets next month, to compensate for a perceived global weakening of demand.

Scott Shelton, a broker at ICAP, summarized the current environment by stating, "The market is stuck between a perception of 2020 oversupply and strengthening physical markets for oil globally."

Michael Bradley, energy analyst with Tudor, Pickering Holt, thinks the next big influence for traders will arrive on December 5: "Obviously, the biggest thing that's going to decide where crude prices go in the next two or three weeks is going to be the OPEC meeting.

"My guess is the next two or three weeks we're going to hear people staking out positions from a commodities standpoint."

But Bradley conceded that the biggest overall impact will be a U.S./China trade deal, which he forecast could boost demand growth by 1.3 million or 1.4 million barrels per day (bpd) next year (without a deal, he thinks demand could grow less than 1 million bpd).

As far as John Kemp, commodities analyst for Reuters, is concerned, the oil market has entered an upward price cycle due to his perception that the global economy is steadying and the surge in shale production is fading.

Kemp made that claim on Tuesday on the strength of hedge funds continuing to buy oil derivatives last week, to the tune of 26 million barrels of futures and options in the six major petroleum contracts.

Kemp wrote, "From a positioning perspective, hedge fund longs remain modest at just 825 million barrels, down from more than 1 billion in April, indicating there is plenty of scope for more buying if the news flow improves."

He concluded, "On most measures, the balance of price risks has swung toward the upside, at least in the short term, provided there is no renewed flare up in the U.S./China trade war or another downturn in global economic growth."