Crude Drops Moderately But Bearish Sentiment Seen as Retreating

Meanwhile, hope is building for a successful end to the U.S./China trade dispute: File Image/PixaBay

Despite all indications pointing toward U.S. president Donald Trump signing a significant part of a trade deal with China ahead of schedule, the economic damage caused by the months-long dispute between the two countries once more swayed crude trading behaviour to the negative on Monday.

News that profits at Chinese industrial companies falling for the second straight month in September caused Brent to fall 45 cents to $61.57 per barrel, while West Texas Intermediate fell 85 cents to $55.81.

The losses were compounded by the disclosure from Genscape that after building for three consecutive weeks, crude stockpiles at the Cushing, Oklahoma, delivery point for WTI rose by about 1.5 million barrels in the week through October 25, compared to analytical expectations of a 700,000 barrel build.

Still, Jim Ritterbusch, president of Ritterbusch and Associates, said the negative Chinese economic data was likely already baked into prices and offset by optimism regarding the U.S.-China trade talks.

John Kemp, commodities analyst for Reuters, pointed out that while the global economy and oil consumption growth "have decelerated sharply over the last year,"  the Fed and other central banks "have started to cut interest rates to keep the expansion going, and there are renewed hopes for a trade truce between the United States and China, which should be positive for oil demand."

Kemp added, "If the outlook for prices is not exactly bullish, it is no longer becoming more bearish, and that is enough for some funds to start trimming short positions and establishing new longs to capitalize on the resulting bounce in prices."

It's also noteworthy that much of the hand-wringing about fallout due to the U.S./China trade war appears to have been overblown: Jim Cramer, host of CNBC's Squawk on the Street, noted that stocks have been lifted recently from better-than-expected earnings, and of the 206 S&P 500 companies that have reported for the third quarter, 78 percent have beaten analyst expectations.

Cramer said, "I think there's some mea culpas that we need to hear from the people that said cyclical America would be damaged....it turns out the industrials are not as perturbed about China as you would have thought."