US, China shore up oil market sentiment with talk of concessions - 18 Jan 2019
- Overtures and concessions were coming thick and fast from both Washington and Beijing as the week came to a close, providing a big boost to stock markets across the globe as well as crude. As we mailed this report, just a couple of hours before market close on Friday, Brent and WTI futures were poised to settle at their highest levels in more than a month.
- As we have been discussing in our Viewsletter, the US-China trade spat has hung like an ominous and growing cloud ove the prospects of global economic growth in 2019, becoming one of the major reasons for increasing risk aversion among investors since last October. As stock markets plummeted amid a sustained and steep sell-off, oil has been dragged along for the ride.
- If the US and China are able to reach a rapprochement in the coming days and weeks, investor sentiment will recover, stocks will rebound, and so will crude prices. The US Federal Reserve has already provided relief to the markets by signaling a patient and flexible approach to interest rate hikes in 2019, so that’s another hurdle removed for the time being.
- Brent’s flip to backwardation at the front end of the futures curve on Thursday could portend a tightening market, as the latest OPEC/non-OPEC cuts begin to bite and a dissipation of the US-China tensions sets global oil demand back on the path of solid growth in 2019.
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