U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher for a fifth session on Tuesday on expectations that OPEC and its allies may agree to extend their agreement to reduce output, reduce global supply and stabilize prices. While this news is creating a bullish tone on the supply side of the equation, an easing of trade tensions between the United States and China is helping to dampen worries about demand growth.
Saudi’s Appoint New Energy Minister
What’s exciting the bullish traders this week is the appointment of Saudi Arabia’s king of his son, Prince Abdulaziz bin Salman, as energy minister on Sunday.
Prince Abdulaziz is not new to the oil game. He’s been a long-time member of the Saudi delegation to OPEC so he is familiar with its operations. On Sunday he said the pillars of Saudi Arabia’s policy would not change and a global deal to cut oil production by 1.2 million barrels per day would be maintained. That’s good news because this plan has been propping the market up for at least two years.
Prince Abdulaziz also added that the so-called OPEC+ alliance, made up of OPEC and non-OPEC producers including Russia, would be in place for the long-term. This is driving prices higher this week because it indicates that he’s willing to be proactive in supporting prices.
The markets are headed toward areas on the charts that provided resistance in July. However, the sell-off that began in early August was news driven. At that time, the U.S.-China trade dispute was escalating, increasing fears of a recession and slower demand growth. Conditions have calmed since, so now we have a market that is being supported by improving relations between the two economic powerhouses and talk of an extension of the OPEC-led production cuts.
There is room to the upside, but gains could be capped if OPEC members Iraq and Nigeria continue to boost supply, or if Russia decides to exceed their quota. Furthermore, a slowing global economy could weigh on prices. Remember that the markets may be at peace because of the renewed trade talks, but the global economy hasn’t actually turned for the better.
Later today at 20:30 GMT, the American Petroleum Institute will release its latest inventories data for the week-ending September 6. It is expected to show a 2.6 million barrel draw. This will be further confirmation that the OPEC-led production cuts are working to drive down U.S. inventory.
This article was originally posted on FX Empire
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