- Oil holds in the $60 handle, WTI, following market euphoria on global trade prospects.
- Combination of OPEC+, Sino/US trade deal and reduced shale production buoys energy market.
A price of a barrel of oil has been elevated o trade optimism, with West Texas Intermediate crude for January trading on the $60 handle, spot, having travelled from a low of $59.74 to a high of $60.32, supported by the 21-day moving average on pull-backs.
The so-called phase-one deal between the US and China, combined with the OPEC+ agreement along with an expected slowdown in US shale production, is underpinning an upside bias for the energy markets into the closing weeks of the year. “CTAs are now set to provide a bid across the board for the energy sector, in response to firming momentum signals,” analysts at TD Securities argued.
US stocks reach all-time highs
The removal of tariffs, in line with expectations for a phase-one trade deal, has helped to rejuvenate market sentiment and investors are taking on risk as the world’s two largest economies seek to find a level playing field. The fact that we have passed Sunday, the date when tariffs on good would have otherwise have kicked in has seemed to have fuelled a bid. The S&P 500 is making fresh record highs on the day – 3,197.70, promoting US President Donald J. Trump to tweet:
New Stock Market high! I will never get bored of telling you that – and we will never get tired of winning!
– Donald J. Trump @realDonaldTrump.
How long can the euphoria last?
For oil, and risk-on markets, it is whether this optimism can really last, or, for how long will it be able to do so?
The more pessimistic, or cautious investors, will be of the view that there are still many road-bumps ahead and we are already seeing that Chinese officials have been reluctant to mention any specific targets with respect to the US requirements for China to boost specified amounts of specific US goods. This is even before we delve into the more critical issues such as intellectual property rights and currency devaluations. Such commitments are not going to come overnight and Trump’s heavy-handed approach will likely see him wave the tariff stick at China at any given time.
For now, markets prefer to trade the euphoria which was massaged over the weekend by US Trade Representative, Robert Lighthizer, who said on Sunday to CBS that the phase-one China deal was “totally done.” He even went on to say that the deal goes beyond agriculture to address intellectual property issues, noting that it has strong enforcement provisions and addresses financial services and currency devaluation issues. He admitted that a number of contentious issues remain to be resolved in further “phase two” talks, (which is where the risk lie), which have yet to be scheduled and that the deal is expected to be signed in January.
WTI levels
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