The trade deal headlines might have become tiring to the traders, but not to their machines.
Headline-reading algorithmic trading models will remain alert to words like “close,” “very near” and “good progress” that are associated with the U.S.-China talks this week as signs to continue buying into oil.
For a market that should have fallen on fundamentally bearish headlines about high crude supplies last week, oil actually rose after fresh hype by White House officials built around the trade deal.
WTI 300-Min Chart
All charts powered by TradingView
settled the week up 0.8% at $57.72 per barrel, after hitting a seven-week high of $57.97. rose 1.3% on the week to close at $63.30, after a seven-week peak at $63.64.
In Monday’s early Asian trade, both WTI and Brent inched higher, extending Friday’s rally, after China’s state media Xinhua said Beijing and Washington had "constructive talks" on trade in a high-level phone call on Saturday.
Before that, Commerce Secretary Wilbur Ross sent crude prices rallying at the end of the week by telling Fox Business there was a very high probability the White House will reach final agreement with China on their phase-one trade deal. “We’re down to the last details,” Ross said.
Ross and White House colleague Larry Kudrow, whose job is to advise President Donald Trump on the economy, also helped send all the three major stock indices on Wall Street to record high closings on Friday.
'There’s No Hype Like This'
John Kilduff, founding partner at New York energy hedge fund Again Capital, said virtually every market from equities to forex, bonds and commodities were bought on the notion that a trade deal had to happen—and only headlines containing words like “no deal,” “no consensus” and “delayed deal” could derail the rally.
“There’s currently no hype like this. The humans might be circumspect to the very unnatural feeling of this bull market but not the machines, which are programmed to move with the herd.”
“The algos are reading and the algos are buying because that’s what they’ve been programmed to do. Of course, they’ve in-built technical limits and losses, but those usually only trigger when the trend definitely moves the other way. And there are no signs now of that happening or for administration officials on either side willing to let that happen.”
What Happens If There’s No Deal By Dec. 15?
In the absence of a deal, we can presume that Ross and Kudrow will continue their weekly appearances on Fox to keep alive the hope of an imminent agreement. This will likely extend until the eve of Dec. 15—the deadline for tariffs on China, threatened by Trump.
At that point, there could be another deferment to the scheduled tariffs.
And more talks.
And all the while, crude prices could continue rising.
Data from Friday showed that money managers raised their net long U.S. crude futures and options positions in the week to Nov. 12, boosting combined holdings in futures and options positions in New York and London by 39,995 contracts, to 169,386.
TD Securities said U.S.-China trade optimism was certainly a driver for the surge in buying. But the group also expressed a worry about growing crude inventories in the United States.
But Oil Supplies Are Already Growing
The brokerage added:
“We suspect that exposure will tilt toward the shorts, as H1-2020 will see significant surpluses and lower prices.”
H1 2020 could mean anytime between January and June. In the short-term, there are already signs of higher supplies. The Energy Information Administration’s latest weekly reading on came in a third higher than market expectations. The EIA also cited a weekly of nearly 2 million barrels, versus the drop of slightly more than one million forecast by the market.
If that wasn’t enough, the EIA’s Short-Term Energy Outlook, published separately, said U.S. crude oil output is expected to hit a record of 13 million barrels per day this month and grow more than expected in 2019 and 2020. The weekly report already estimates output at 12.8 million bpd.
Casting a further pall on the market, the International Energy Agency estimated that non-OPEC supply growth would reach 2.3 million bpd next year compared to 1.8 million in 2019, citing production from the United States, Brazil, Norway and Guyana.
However, instead of paying heed to those numbers, oil traders went instead with OPEC’s suggestion that U.S. shale oil production might be collapsing.
The OPEC Gambit
OPEC’s premonition on shale came from Secretary-General Mohammed Barkindo, who told CNBC that after talking to “a number of producers, especially in the shale basin, there is a growing concern by themselves that the slowdown is almost graduating into a fast deceleration.”
Barkindo added that “are telling us that we are probably more optimistic than they are, considering the variety of headwind challenges they are facing.”
In reality, what OPEC needs to address is the persistent overproduction by serial offenders such as Nigeria and Iraq—even non-member ally Russia—that make it a challenge for the cartel’s de-facto leader Saudi Arabia to stick to the 1.2 million barrels-per-day cuts agreed nearly a year ago.
With the mega stock sale of Aramco, the Saudi state oil company, just around the corner, the kingdom prefers to enforce the existing production pact and somehow keep prices up, without getting into deeper cuts.
OPEC members know that when they meet in December, there very likely won’t be a decision for deeper cuts. But if that becomes a mantra now, it could pressure prices lower, especially with the absence of a U.S.-China deal. So the cartel talks down shale, and the market buys that.
Gold Could Remain The Classic Hedge As Bar For Selling Is High
In the case of gold, it acted more like the contrarian bet to the U.S.-China optimism that it was, with prices just slipping last week—rather than tumbling—on the remarks by Ross and Kudlow.
for December delivery on New York’s COMEX settled at $1,468.50 per ounce, down 0.3% on the day but up 0.4% on the week.
, which tracks live trades in bullion, saw a final trade of $1,467.86 in New York on Friday, down 0.1% on the day but up 0.6% on the week.
Gold 300-Min Chart
The yellow metal fell off the bullish $1,500 perch early this month after Federal Reserve Chair Jay Powell suggested that the central bank's third quarter-point rate cut in October would be its last for the year.
TD Securities said while gold funds may have liquidated some of their long holdings in the yellow metal, “the bar is high for machines to add further selling pressure, and aggregate open interest still sits at all-time highs.”
“Our estimated breakeven entry point for the bulls stands in the $1440/oz range, which suggests that a break below that range would be required for prices to be dragged lower by a decline in open interest.”
Other relevant articles
[2019-11-18 09:00:35] Forex - Dollar Hits 1-Week Low as Trade Developments Awaited
[2019-11-18 07:30:23] Oil Prices Inch Down Despite Positive Trade News
[2019-11-18 07:05:21] Oil Short-Selling Unwinds in View of Shale Woes, Trade Hopes
[2019-11-18 06:40:22] Gold Prices Slip Amid Trade Deal Hopes
[2019-11-18 02:35:39] Oil prices flat with markets on hold for progress in U.S.-China...
[2019-11-18 02:05:27] Asia shares in waiting mode ahead of Fed, ECB events
[2019-11-17 21:30:20] 3 Stocks To Watch In The Coming Week: Home Depot, Salesforce, Aurora...
[2019-11-17 15:35:19] Week Ahead: Volatility To Rise After Robust Risk Rally But No Trade...
[2019-11-17 14:00:22] Saudi Aramco in race for IPO record with $1.7 trillion top value
[2019-11-17 13:50:19] Forex - Weekly Outlook: November 18 - 22
[2019-11-17 13:00:22] Energy & Precious Metals - Weekly Review and Calendar Ahead
[2019-11-17 12:30:19] Aramco IPO range values Saudi oil giant at up to $1.7 trillion
[2019-11-17 12:20:19] Economic Calendar - Top 5 Things to Watch This Week
[2019-11-17 09:05:23] Saudi Aramco valuation set at up to $1.7 trillion, no overseas roadshows for IPO
[2019-11-17 05:55:25] Dollar Ends Bruising Week: More Losses Ahead?
[2019-11-16 11:35:16] 3 Things Under the Radar This Week
[2019-11-16 00:15:16] Bloomberg to skip his own China forum next week as he mulls...
[2019-11-15 22:10:12] Stocks- S&P 500 Soars to 6th Weekly Gain
[2019-11-15 22:00:24] U.S. to begin second round of trade aid payments for farmers next...
[2019-11-15 21:35:13] Gold Dips as Trade-Deal Hype Returns Again
[2019-11-15 21:30:17] Oil Ends up, Hitting 7-Week Highs on Elusive Trade Deal
[2019-11-15 21:20:15] Gold Dips as Trade Deal Hype Returns Again
[2019-11-15 19:30:18] Wall Street Weekahead: Sagging consumer discretionary shares look...
[2019-11-15 19:25:14] StockBeat: AMD Gets Some Data Center Wall Street Love
[2019-11-15 18:10:14] Oil up Again, Chasing Elusive Trade Deal
[2019-11-15 16:20:18] U.S. Signals China Trade Talks in Final, Hardest Steps to a Deal
[2019-11-15 16:15:15] Legendary Oil Trader Says the End of Demand Growth in Sight
[2019-11-15 16:10:22] Gold Prices Drift Lower After U.S. Data Fail to Inspire
[2019-11-15 13:05:10] A chip on its shoulder? EU files WTO complaint against Colombia
[2019-11-15 10:45:16] Italy to press ahead with web tax despite U.S. warning: deputy...
[2019-11-15 09:40:11] European shares poised for sixth weekly gain, aided by trade...
[2019-11-15 09:10:10] ArcelorMittal Allowed to Complete $5.8 Billion Essar Deal
[2019-11-15 06:45:11] Gold Prices Fall as Risk Appetite Improve on Sino-U.S. Trade News
[2019-11-15 06:30:11] Oil Prices Gain Amid Reports of Potential OPEC Supply Curb
[2019-11-15 03:15:12] Oil rises on hopes for OPEC supply curbs, new optimism on...
[2019-11-15 00:55:11] Alibaba praises Hong Kong ahead of $13.4 billion listing
[2019-11-14 22:40:10] Day Ahead: Top 3 Things to Watch
[2019-11-14 21:35:10] Oil Edges Lower after Crude Stockpile Build
[2019-11-14 21:35:10] City and union officials to consult on Philadelphia refinery sale...
[2019-11-14 21:00:14] Gold up Again as Missing-in-Action Trade Deal Helps
[2019-11-14 19:10:08] Oil Prices Reverse Into the Red Following Crude Stockpile Build
[2019-11-14 17:10:08] NewsBreak: U.S. Oil Inventories Rose by 2.2M Barrels Last Week
[2019-11-14 17:00:13] Forex- U.S. Dollar Flat as Weekly Jobless Claims Rise to...
[2019-11-14 16:50:08] Gold Prices Inch Higher as Weak Data Keeps Trend Intact
[2019-11-14 15:05:07] Bolsonaro says wants no role for Brazil in U.S.-China trade war
[2019-11-14 14:50:08] NewsBreak: Weekly Jobless Claims Hit Highest Since July
[2019-11-14 14:40:07] U.S. weekly jobless claims rise to five-month high
[2019-11-14 13:30:08] OPEC sees smaller 2020 oil surplus ahead of policy meeting
[2019-11-14 12:20:07] Ford to start taking reservations for electric SUV next week
[2019-11-14 12:15:07] Trump impeachment inquiry moves ahead after start of televised...
[2019-11-14 12:10:12] U.S. Boosts Oil-Output Forecast While Industry Warns of Slowdown
[2019-11-14 11:00:13] UAE, Egypt launch $20 billion investment platform: Abu Dhabi crown prince
[2019-11-14 10:55:06] China lifts restrictions on U.S. poultry meat imports: customs
[2019-11-14 07:45:07] Gold Prices Up Amid Weak Economic Data, Trade Uncertainties
[2019-11-14 07:15:07] Oil Prices Rise Amid Falling U.S. Crude Inventories
[2019-11-14 02:25:11] Oil rises on decline in U.S. crude stocks, Fed comments on...
[2019-11-14 01:40:19] Stocks in cautious ranges ahead of China data, trade talk hopes...
[2019-11-13 22:55:09] NewsBreak: Crude Stockpiles Down 500,000 Last Week - API
[2019-11-13 22:50:09] Day Ahead: Top 3 Things to Watch
[2019-11-13 22:05:41] Gold Continues Upward in Mid-$1400s on New Trade-War Uncertainty
[2019-11-13 21:55:10] Gold Continues Upward in Mid-$1400s on New Trade War Uncertainty
[2019-11-13 20:30:10] U.S. money market assets increased in latest week: iMoneyNet
[2019-11-13 20:10:09] Oil Rises Defying Record U.S. Crude Production
[2019-11-13 18:25:08] U.S. crude output to rise more than expected this year and next:...
[2019-11-13 17:00:16] Oil is our gold and we aim to use all of it, ADNOC official says
[2019-11-13 16:05:08] Stocks - Wall Street Falls Ahead of Powell Testimony
[2019-11-13 15:55:08] Gold Prices Rebound as Havens Sought Ahead of Powell Testimony
[2019-11-13 14:00:13] Oil Prices Lower on Concerns Over Trade, Demand Outlook
[2019-11-13 11:30:09] Chinese importers buy U.S. soybean cargoes despite ports...
[2019-11-13 07:35:19] Oil Prices Down as Sino-U.S. Trade Hope Diminishes
[2019-11-13 07:10:08] Gold Prices Gain; Trade Progress, Hong Kong Unrest in Focus
[2019-11-13 06:10:09] Aramco names first woman to head overseas office, days before IPO
[2019-11-13 03:00:13] Oil dips as U.S.-China trade deal hopes fade
[2019-11-13 02:00:14] U.S. House panel to hold impeachment hearings next week
[2019-11-12 22:35:05] Day Ahead: Top 3 Things to Watch
[2019-11-12 22:05:36] Oil Ends a Little Lower as Trump Offers Little On China
[2019-11-12 21:55:06] Gold Perks up After Hours as Trump Signals Nothing New on China
[2019-11-12 21:45:05] Gold Perks up After Hours as Trump Signals Nothing New on China
[2019-11-12 20:20:05] UK Conservative Party hit by cyber attack ahead of election: two...
[2019-11-12 20:00:09] Oil Stays in the Black as Trump Offers Little on China Deal
[2019-11-12 20:00:09] Oil Stays in the Black as Trump Offers Little on China Deal
[2019-11-12 19:05:28] It’s Weed Week: Hang On As Cannabis Firms Report Earnings
[2019-11-12 18:05:04] Brazil oil auction flop to dent 2020 government revenues: survey
[2019-11-12 17:00:08] Gold Prices Test Lows Again as Market Awaits Trump Speech
[2019-11-12 16:25:05] Offshore Oil to Peak in 2020, Then Join Shale in Market Slowdown
[2019-11-12 14:20:17] Oil Prices Climb, Reversing Early Losses Before Trump Speech
[2019-11-12 14:05:04] Stock futures flat ahead of Trump speech
[2019-11-12 10:05:04] Gold’s Just Not That Appealing to Young Chinese Luxury Shoppers
[2019-11-12 07:25:03] Gold Prices Fall, Near 3-Month Low
[2019-11-12 07:10:04] Explainer: What a roll-back of Trump tariffs on Chinese goods may look like
[2019-11-12 06:45:04] Oil Prices Rebound; Uncertainty Surrounding Trade Progress Remains
[2019-11-12 02:05:26] Oil dips for second day on lack of trade talk progress
[2019-11-12 01:30:28] Asia shares turn sluggish ahead of Trump speech
[2019-11-12 01:00:35] 5 Biggest Risks For FX This Week
[2019-11-12 00:45:27] Records Threatened From N.Y. to Texas With Blast of Arctic Air
[2019-11-11 22:45:25] Day Ahead: Top 3 Things to Watch
[2019-11-11 22:05:24] Oil Ends Down as Trade War Continues to Hang Over Market
[2019-11-11 21:45:24] Gold at 3-Month Low for Third Day as Near-Term Bull Case Erodes
[2019-11-11 19:50:24] Oil Drifts as Trade War Continues to Hang Over Market
[2019-11-11 19:40:24] StockBeat: Nvidia off Lows on Wall Street Upgrade Ahead of...