The prospect for a “phase one” trade deal between the US and China received a major setback yesterday after the U.S. Senate passed the Hong Kong Human Rights and Democracy Act. The bill drew a rebuke from China and the standoff is likely to complicate discussions about a growth stabilizing trade deal. The markets reacted by sending bond yields and global stocks lower. Adding to the negative sentiment yesterday was the disappointing earnings report from Home Depot, a major U.S. retailer.
Crude oil already under pressure dropped further with Brent and WTI both breaking the uptrends from early October. Weakness was seen already before the Senate vote as the market was growing increasingly worried about the lack of concrete progress in U.S.-China trade negotiations. With demand growth once again being questioned the real damage was inflicted by a report from Reuters which said that Russia was unlikely to agree to further production cuts. Without deeper cuts from the OPEC+ group of producers the International Energy Agency forecast a 2020 production surplus of more than 1 million barrels/day. This in response to a continued rise in 2020 non-OPEC production from countries led by the U.S., Norway and Brazil.
Ahead of today’s “Weekly Petroleum Status Report” at 1530 GMT the American Petroleum Institute yesterday released their update. It showed a bigger than expected rise in both crude oil and gasoline stocks. We maintain the view that Brent crude is likely to remain rangebound around $60/b ahead of yearend. In the short-term, support, using Fibonacci retracements of the October to November rally, can be found at $59.90/b followed by $59.00/b.