Oil Ends up, Hitting 7-Week Highs on Elusive Trade Deal

By Barani Krishnan

Investing.com – The we’ll-have-a-trade-deal-soon mantra provided a floor for oil again Friday, pushing crude prices to seven-week highs, even as Chinese media disputed Beijing’s willingness to commit to the kind of U.S. agricultural purchases.

Prices of U.S. West Texas Intermediate and London’s Brent rose by nearly 2% each, egged on by record highs for all the three major stock indexes on Wall Street, where the noise of a prospective trade deal was even greater.

NYME-traded WTI settled up 95 cents, or 1.7%, at $57.72 per barrel, after hitting a seven-week high of $57.97.

ICE (NYSE:ICE) Futures-traded U.K. Brent closed the regular U.S. trading up $1.02, or 1.6%, to $63.30. Earlier, it rose to a seven-week peak of $63.64.

Both crude benchmarks showed weekly gains of about 1%.

“It’s the mindless cacophony of the trade deal making its rounds again and everyone on Wall Street to NYMEX is latching on to it for a ride, regardless of the fact that it’s the same din we’ve been hearing for two weeks now -- that a deal is coming,” said John Kilduff, partner at New York energy hedge fund Again Capital. “And there’s nothing on paper to prove the words."

White House economic advisor Larry Kudlow said on Thursday that the U.S. and China were close to securing a trade deal. His comments come after a week of volatility after reports that the two sides had hit a snag over trade talks. Chinese media on Friday fleshed out arguments that Chinese demand for U.S. farm products is nowhere near the level of purchases that Washington is insisting on in order to seal a partial phase one deal.

U.S. Commerce Secretary Wilbur Ross said Friday that U.S. and Chinese officials would hold a call later in the day, but added that the U.S. could still impose tariffs on Chinese goods, which are scheduled for Dec. 15.

"We have been here so many times where the market gets its hopes up and then it gets crushed," Scott Brown, chief economist at Raymond James in St. Petersburg, Florida, said, expressing confidence that a deal might still happen.

Reuters, meanwhile, assisted the bullish theme in oil somewhat by reporting that the U.S. shale industry plans another spending freeze next year.

The industry has seen a sharp slowdown in production growth, as prolific oil and natural gas output has pressured prices and squeezed profits, the report said.

Producers have already said they expect to spend about $4 billion less in 2019 than in 2018, according to U.S. financial services firm Cowen & Co., quoted by Reuters. So far, 21 exploration and production companies tracked by Cowen have released 2020 capex guidance with 15 projecting declines, five with increases and one unchanged, for a 13% year-over-year spending decline.

Yet, Investing.com oil columnist Ellen R. Wald wrote on Thursday that traders needed to beware that shale oil companies were sometimes overly dramatic in expressing their growth concerns.

“These could be tactics designed to reduce analysts’ expectations, so when these companies reveal their Q4 earnings, their share prices won’t drop nearly as much,” Wald wrote.

“With Chesapeake Energy's share price so low that it is about to be delisted from the stock exchange, it wouldn’t be surprising to see similar oil producers actively trying to decrease expectations,” she said.

Casting a further pall on the market, the International Energy Agency also said in its monthly report on Friday that OPEC and its allies face stiffening competition in 2020.

The IEA estimated non-OPEC supply growth would surge to 2.3 million barrels per day (bpd) next year compared to 1.8 million bpd in 2019, citing production from the United States, Brazil, Norway and Guyana.

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