WTI Caught Between US-Iran Tensions & US-China Trade Deal
The CFTC COT position report showed that last week, investors increased their upside positions in WTI by a further 4,780 contracts, taking the total position to 554,857 contracts. The recent increase in WTI positioning reflects the better expectations around US-Sino trade relations.
Trump announced that the two sides will now sign the phase-one trade deal on January 15th, with a Chinese delegation heading to Washington on January 13th. Trump also announced that he will be heading to China in the near future to talk with Xi JinPing in a bid to move talks onto the next level.
Following the signing of this initial deal, the two sides will then move onto discussing the second phase of the deal. Although there are greater obstacles to be navigated during this round of negotiations, the market is hopeful that the two sides will be able to strike a compromise which will help put an end to the two year trade war which has weighed heavily on global growth.
Away from the US-Sino trade deal, other developments are also impacting WTI. The latest outbreak of aggression between the US and Iran is being watched nervously. News of the US assassinating general Qassem Soleimani saw WTI prices sharply higher on fears of a full-scale conflict between the US and Iran. This week, Ira finally retaliated to the attack, launching 22 ballistic missiles at US sites in Iraq. While WTI prices spiked immediately after the attack, the move has since reversed as fears of supply disruption have receded. The market now waits to see what move the US will make next.
Upside move sin WTI will be closely watched by OPEC in light of the recent increase in production cuts announced just before Christmas. If WTI prices continue to trade higher over Q1 this could reduce the chances that OPEC will look to extend the cuts when it meets next in March.
EIA Reports First Inventories Build in A Month
The EIA report released yesterday exerted downside pressure on WTI prices. The EIA highlighted the first inventory surplus in the US in four week, with inventories rising by just under 2 million barrels last week. However, in light of the precarious state of affairs between the US and Iran, this report could lose all meaning if we see further military escalation in coming days.
Technical View
WTI Crude (Bullish above 57.23)
From a technical view point. WTI reversed lower from a test of the monthly R1 at 63.82 and is now moving back down towards the monthly pivot at 59.56. With longer term VWAP still positive, support is likely here though if we move deeper, I will be watching the yearly pivot at 57.23 which is also around the same level as VWAP. Below here the view turns bearish.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!