Crude Trading Tepid, But Promising Signs For Healthy 2020 Demand Persist

However, RBC warns that circumstances could easily shift to the negative: File Image/PixaBay

More tepid movement for crude prices resulted from Wednesday's trading session, but the factors motivating traders seemed to bode well for the health of the commodity in the near- as well as long-term.

Brent gained 7 cents to settle at $66.17 per barrel while West Texas Intermediate ended the session down 1 cent at $60.93  per barrel.

Despite Tuesday's report from the American Petroleum Institute of a 4.7 million barrel build in U.S. stockpiles, the Energy Information Administration on Wednesday revealed that crude in fact fell by 1.1 million barrels to 446.8 million barrels, in the week to December 13.

Also supporting crude trading were ongoing expectations of a growth in demand in 2020 thanks to the long-awaiting signing of the U.S./China Phase One trade deal.

Tony Headrick, an energy markets analyst at CHS Hedging, remarked, "The market reaction was abruptly stronger due to the fact that we were so far away from industry estimations in the way of a net build.

"The upward trend from optimistic demand expectations such as from recent developments like U.S.-China trade deal has the ability to stay intact after these figures."

What the average price of crude will be in 2020 is anyone's guess, but Leonid Fedun, vice president of Russia's Lukoil, suggested that a price of $60-65 per barrel would be comfortable for members and allies of the Organization of the Petroleum Exporting Countries (OPEC), which recently agreed to deepen its output cuts next year in order to ensure a healthy supply and demand balance.

Fedun added that price shocks would only happen if producers violate their commitments.

Of course, price trajectory could easily reverse: RBC Capital Markets on Wednesday noted that prices could stagnate if trade progress did not translate into concrete economic growth.

The bank wrote, "Economic green shoots will help sentiment, but broad macro worries, oil demand softness, and pent up producer hedging may continue to serve as near term headwinds for oil prices."