U.S./China Deal Fails to Impress Traders As Crude Prices Rise Minimally

by Ship & Bunker News Team
Monday December 16, 2019

If crude trading activity on Monday is any indication, the highly-anticipated positive impact of Friday's signing of a first phase trade deal between the U.S. and China is somewhat of a bust.

Even though the benchmarks remained near three-month highs, Brent on Monday rose only 16 cents, or to $65.37 per barrel, while West Texas Intermediate crude rose a paltry 14 cents to $60.21 per barrel.

The performance was said to be the result of investors awaiting further details of the trade deal:  Michael McCarthy, chief market strategist at CMC Markets, noted that "It seems the market has now fully priced the phase one trade agreement so we are going to need further news if we are going to push through the important [technical] resistance that is just ahead of crude oil."

ING Economics expressed similar sentiments: its analysts said, "The longer we have to wait for this detail, the more likely market participants will start to question how good a deal it actually is."

Monday's tepid gains were presumably also the result of reports from policy sources that China plans to set a lower economic growth target of around 6 percent in 2020 from this year's 6-6.5 percent - a sign that oil demand may suffer correspondingly.

However, in terms of the health of the crude market overall, John Kemp, market analyst for Reuters, pointed out on Monday that the recent decision by the Organization of the Petroleum Exporting Countries (OPEC) to deepen its production cuts encouraged hedge funds and other money managers to buy futures and options equivalent to 154 million barrels in the six most important contracts linked to petroleum prices in the week to December 10.

Kemp wrote, "Purchases were the largest in any one week for more than two years, according to position records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission."

He added that from a fundamental perspective, fund managers "seem increasingly confident the global economy will avoid a recession and OPEC+ will cut output enough to avert a build up in inventories next year."