Could US-China Trade Deal Be Pushed Back?
December 4th, 2019
The API inventory update from yesterday called crude oil stocks down 3.7 million barrels. The crude stocks at Cushing, Ok the NYMEX WTI crude oil contract delivery point were down 251,000 barrels. Gasoline stocks were up 2.9 million barrels and distillate stocks were up 794,000 barrels.
The average estimates for today’s DOE inventory update from the Bloomberg survey are crude stocks down 1.222 million barrels, gasoline stocks up 1.404 million barrels and distillate stocks up 137,000 barrels.
President Trump said that a trade agreement with China may have to wait until after the US presidential election in November 2020. This was bad news and helped the selloff yesterday
US Commerce Secretary, Wilbur Ross, said that President Trump’s objectives on a trade deal with China have not changed and that Trump is under no time pressure to complete a deal. He also stated that planned tariffs on Chinese imports will be imposed on December 15th unless there is some real reason to postpone, such as substantive progress in talks.
The potential that a trade deal could be pushed back was seen as negative yesterday and helped the sell off. Today prices have rebounded after testing the lower end of the trading range that has been in place for months. As of now any rebound will have to be viewed as more congestion in the trading range unless these markets can finally break out to the upside.
The opinions on OPEC vary but most seem to think that extending the cuts is a done deal. That only leaves the question of whether they make additional cuts. The number being floated around the market is an additional 400,000 bpd.
Goldman Sachs said OPEC and its allies were likely to extend output cuts through June but said an extra three months of cuts would provide little support to prices, which it expected to continue trading around $60 per barrel in 2020. It said already large speculative buying in recent weeks and some expectations for a longer cut suggest that an uneventful 3-month extension is unlikely to prove much upside to current prices.
JPMorgan said OPEC and other major oil producers are expected to agree to deeper output cuts of 1.5 million bpd to the end of 2020 compared with 1.2 million bpd currently to help reduce a global supply overhang. A JPMorgan analysts stated that Saudi Arabia will agree to lower its quota to 10 million bpd from 10.3 million bpd and will press other producers, particularly Iraq, Nigeria and Russia to improve their compliance with previous commitments. Saudi Arabia is seeking more cuts in order to ensure that oil prices are within the range of $60 to $70 per barrel which is where their fiscal budget break-even is.
Russia appears to be not on board yet with additional oil cuts, but Saudi Arabia appears to be trying to convince them before this Thursday (OPEC) and Friday (OPEC+) meeting in Vienna.