Search ForexCrunch
  • Oil prices on Thursday have been whipsawed on opposing pressures, although the upside appears to be the path of least resistance and bulls retained control.  
  • West Texas Intermediate, (WTI), dropped in European trade from $54.66bbls to a low of $53.13bbls before bulls committed and sent prices back to a late US session high of $54.57bbls.  

WTI moved in for a positive close on Thursday following a sharp sell-off that took out the prior day’s lows only to attract hungry bulls again which left spot prices close to overnight highs. Investors are trying to second guess that outcome of trade talks that are ongoing between the US and China, with hot to cold headlines creating volatility in the market based on supply and demand fears. U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer are meeting with China President Xi Jinping in Beijing on Friday, but the sentiment is not so positive following a WSJ and Bloomberg report that there are road bumps along the way.  

Trade war talks hit a bump in the road

A major concern in markets is over corporate governance and structural reform, such as intellectual property protection, and, equal market access , which the US requires of any counterpart in a trade deal with China, something which is unlikely to get over the line and of which could seriously jeopardise any agreement being made before Trump’s tariff deadline kicks in on March 1st. Previous reports in the week suggested that Trump was in-fact considering a 60-day extension of the deadline if talks continued to progress, lending support to the upside case for the price of oil and risk sentiment in general. However, the US and China “have made little progress so far” during talks in Beijing, according to a WSJ report and a more recent Bloomberg story. Corporate governance is “an extremely sensitive issue that is seen as a non-starter for Chinese leaders,” the Bloomberg story argued, adding, “The hurdles raise questions about whether negotiators can meet Trump’s criteria for pushing back the March 1 deadline for more than doubling tariffs on $200 billion of Chinese goods”.  

However on the other hand, there are more recent headlines from the South China Morning Post, citing sources, that acknowledges that said road bump, but also reports that, “in the latest round of talks underway in Beijing, both sides also are discussing the possibility of the US’ removing the 10 per cent punitive tariffs it has imposed on US$200 billion of Chinese products, while leaving the 25 per cent tariffs on US$50 billion of Chinese products unchanged.”  

Supply cuts add to upside case

However, lending support to the upside comes with Saudi Arabia, pledging earlier this week to cut output further in the coming months, according to the Financial Times that was citing oil minister Khalid al-Falih. The oil minister said the Saudis would cut an additional 500,000 barrels a day to take production to 9.8 million barrels a day in March. Russia also claims to be accelerating required cuts under the latest OPEC+ agreement. Alexander Novak, the Russian energy minister, said that February output levels should see a decline of about 150,000 barrels a day relative to December. Adding to the upside case, involuntary declines from Iran and Venezuela are also likely to underpin a bull market.

WTI levels

Despite the advance, bulls still have not crossed the line and need the price to close and hold above 54.50 for prospects of the 56 handle and placement back into the rising wedge once the recent highs at 55.89 are broken, targeting 60. Otherwise, the technical outlook remains bearish while below the rising wedges support line. However, the rise above the 23.6% Fibo retracement is encouraging. On the flip side, a break of 51.50 and the 27th Jan fractal low will open a run to 50.63 as the last defence for 50 the figure, and 7th Jan swing high at 49.96. On the wide, the bottom of the prior trend is down at 42.54 (top of reverse H&S head).