Oil Prices Rise Yet Again as Analysts Suddenly Optimistic About U.S./China Breakthrough

Thursday August 29, 2019

Predictably to some members of the analytical community, the crude market on Thursday defied expectations and rose yet again, with Brent up 51 cents at $61 per barrel and West Texas Intermediate up 87 cents to settle at $56.71 per barrel.

Tamas Varga, senior analyst at PVM Oil Associates, remarked, "If the API [American Petroleum Institute] unexpectedly supplied bullets to oil bulls on Tuesday evening so that they could fire from all cylinders, the Energy Information Administration flung the door of the ammunition depot wide open yesterday."

He is referring to the API on Tuesday saying U.S. crude stocks had fallen by 11.1 million barrels last week, only to be corrected on Wednesday by the EIA, which said crude stocks dropped last week by 10 million barrels - still an impressive figure - while gasoline and distillate stocks each fell by a healthy 2.1 million barrels.

Casting a pall over everything earlier this week was concerns about a slowdown in economic growth due to the trade war between the U.S. and China: "Trade tensions (are) hanging like a dark cloud threatening to rain over oil prices," said Jeffrey Halley, senior market analyst at OANDA.

However, China's commerce ministry said on Thursday that both countries are discussing the next round of face-to-face trade talks, scheduled for September, and while the issue has capped gains for crude this week, on Thursday there seemed to be a shift in the way analysts are perceiving relations between the two countries.

Ashley Petersen, lead oil market analyst at Stratas Advisors, noted that "U.S.-China hope has been the driver this week," and she added that Thursday's plans for discussions have signaled optimism for the September talks to be mutually beneficial: "That's what caused the market to stay strong and close higher."

Meanwhile, Gary Ross, chief executive officer at Black Gold Investors and founder at PIRA, told Bloomberg television that he expects oil demand to pick up in the fourth quarter, and that "the supply side of the market is fairly tight" despite huge increases in U.S. output; he added that if a trade deal between China and the U.S. comes to pass, "a lot of the bearishness for 2020 could turn out to be wrong."

Of course, not everyone seems concerned about - or fully buys into - the prospect of weakening demand anyway, case in point: Russia's oil output reportedly rose to 11.31 million barrels per day (bpd) in August 1-28 higher than the rate Moscow pledged as a cap under the Organization of the Petroleum Exporting Countries (OPEC) cutback deal.