Oil Trades Flat but J.P. Morgan Predicts Big Rebound in 2020

The firm believes the market is significantly undervalued: File Image/PixaBay

The push by democrats to impeach U.S. president Donald Trump - viewed by some as left wing posturing and historically a bid that's almost impossible to achieve - was enough on Thursday to spook traders already nervous about the rapid recovery of Saudi Arabia production facilities following the drone missile strikes earlier this month.

As a result, crude on Thursday traded flat: Brent settled at $62.74 per barrel, up 35 cents, while West Texas Intermediate settled at $56.41 per barrel, down 8 cents.

Phil Flynn, senior market analyst with Price Futures Group Inc., observed,  "When the odds of impeachment go down, the market goes up; when the odds of impeachment go up, it goes down.

"The market doesn't like the prospect of impeachment - that's going to be a negative for the U.S. economy, it's going to be a negative on U.S.-China trade."

However, losses were mitigated somewhat by news that the U.S. Department of Defense will deploy radar systems, Patriot missiles, and about two hundred personnel to bolster the Saudis' defenses after the drone attack, said to be orchestrated by Iran.

Also credited for mitigating crude losses - and potentially supporting the commodity in the near future - was Trump's comment that Beijing wanted to make a deal and it "could happen sooner than you think"; the embattled president also scored points by signing a limited trade deal with Japan, which would open that country's markets to $7-billion of U.S. products annually.

Thursday's trading activity prompted Norbert Ruecker, head of economics and next-generation research at Julius Baer, to remark, "The oil market has seemingly returned to business as usual:instead of the attack-related fallout including disruption and geopolitical risks, the soft economy and stagnant oil demand are back in focus."

But with a keen eye to the bigger picture and longer term vision, J.P. Morgan Chase strategists on Thursday suggested that the "hated" and undervalued energy sector overall is heading towards a substantial rebound.

Dubravko Lakos-Bujas, chief U.S. equity strategist for J.P. Morgan, wrote, "We believe favorable technicals, improving fundamentals with stabilizing business cycle, and ongoing geopolitical tensions in the Middle East could help redirect flows into this universally hated and cheap sector," and he predicted prices could easily rise to $80 per barrel next year.

Lakos-Bujas added, "The sector should be a key beneficiary of stabilization/reacceleration in the business cycle, which we expect to start playing out by early 2020."