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Oil prices look to US-China trade deal for momentum

MarAbu Dhabi: US-China trade talks on a potential phase one trade deal will continue to be the main driver of oil prices, with markets on Monday opening with some gains on the back of renewed optimism on a deal, said analysts.

“Oil markets remain spellbound by US-China trade headlines … After recording greater than 1 per cent moves each day last week Brent futures ended the week at $63.39/b a gain of just 0.14 per cent, while WTI was up even less, settling the week at $57.77 per barrel,” said Edward Bell, commodity analyst, Emirates NBD.

Oil markets on Monday opened with Brent trading at $63.73 and West Texas Intermediate (WTI) on $58.03, both up from their closing on Friday.

Opec+ meeting

With the Opec+ meeting next month to review its production cuts, Bell said that the bloc could decide on further cuts to stabilise prices.

“Opec holds its next meeting on December 5, joined by non-Opec participants in its production cuts the following day … Opec+ has few enviable choices at its meeting. A rollover of the current production cut agreement appears to us the most likely outcome.

“There is a chance the producers’ bloc could endorse deeper level of cuts. But there is no guarantee that heavier cuts would result in prices ending up near where Opec+ economies need them to balance budgets or keep external accounts stable,” he added.

“A higher level of cuts of 1.75 million barrel per day (bpd) would still result in a surplus of around 800,000 bpd in the first half 2020 before a moderate deficit emerges in the second half. That also assumes that all participants achieve 100 per cent compliance with the higher level of cuts,” Bell said, highlighting how oversupply would continue to remain an issue even in the face of more production cuts by the Opec+ group.

Ole S Hanson, head of commodity strategy, Saxo Bank, said that oil prices would continue to remain in the low $60 range due to market oversupply. “While the global economic slowdown and its impact on demand may approach a stage of being fully priced in the short-term, outlook remains troubled by the prospect for strong non-Opec supply not being countered by action from the Opec+ group.

“On that basis and barring any geopolitical disruption, we maintain the view that Brent crude oil is likely to remain stuck in the low $60s before eventually recovering sometime during 2020,” he added.kets on Monday opened with some gains as trade talks set tone for oil markets