Oil Slides as China Concern On Impeachment Adds Another Twist To Trade Deal

Investing.com - It was a matter of time and the Chinese have finally said it. They have concerns over the impeachment proceedings of President Donald Trump. Oil prices slid Monday on that news, leveling some of Friday’s pop that came on the hype that the two sides were close to a deal.

Prices of U.S. West Texas Intermediate and London’s Brent fell more than 1% each, recouping some of the previous session’s losses and decoupling for the first time in days from the stock market. Wall Street’s major stock indexes still managed to set new highs on news that the Trump administration had granted another 90-day license for U.S. firms to do business with blacklisted Chinese telco giant Huawei.

NYME-traded WTI settled down 69 cents, or 1.2%, at $57.14 per barrel. On Friday, it gained 1.7%, soaring to a seven-week high of $57.97, after Commerce Secretary Wilbur Ross and White House economic adviser Larry Kudlow suggested that Washington and Beijing were closing in on a deal.

ICE) futures-traded U.K. Brent closed down 86 cents, or 1.4%, at $62.44. It rose 1.6% in the previous session, hitting a seven-week peak of $63.64.

Despite the slide, WTI is still up 25% on the year and Brent almost 16%.

Monday’s drop in oil came after CNBC cited a source in China as saying that Beijing was minded not to make any further concessions in talks in the near term, and that they preferred to wait and see how the impeachment proceedings against Trump play out.

If substantiated, that would reduce the odds of the phase one trade deal that both sides have publicly talked up, but repeatedly pushed back due to reported differences over issues ranging from tariffs to intellectual property rights.

Citigroup (NYSE:C) analysts, meanwhile, said the recent rise in put skews in oil suggests that investor sentiment “may turn sour again if the brinkmanship between Washington and Beijing continues.”

If the situation persisted, there could also be a “sharp pullback” in crude prices before the Dec. 5-6 OPEC+ meeting between the 14-member Organization of the Petroleum Exporting Countries and its 10 allies, led by Russia, the Citi report said.

Olivier Jakob of Zug, Switzerland-based oil risk consultancy PetroMatrix concurred.

“We are two weeks away from the next OPEC meeting, and nothing has changed on that front,” Jakob said. “At current prices and the upcoming Saudi Aramco IPO, there is nothing to expect from that meeting. The latest updates from OPEC and the IEA still point to a global petroleum stock-build in 2020.”

OPEC+ agreed in December 2018 to cut supply by 1.2 million barrels per day. As that agreement comes up for review in the next three weeks, members of the cartel have already been sounding out that it might not want to deepen cuts.

Analysts at Bernstein said If the OPEC doesn’t cut production by a further 500,000 to 1 million bpd, Brent crude may return to $50 in the short term.

“Current CTA positioning hasn’t been this long since September’s Abqaiq attacks in Saudi Arabia,” Citigroup’s analysts said, referring to the brief double-digit gains in oil after the aerial raid on the kingdom’s largest oil processing facility that knocked out about 5% of daily world output.

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