Oil hits 3-months high on US-China trade optimism


Oil hits 3-months high as the market mood improves. The US-China trade deal has been a major trigger. What should we expect in 2020?

December 17, 2019 | AtoZ Markets – Crude Oil prices have returned upside. The move after the last OPEC meeting in Vienna. OPEC+ revealed readiness to carry out plans to cut production output in 2020 Q1 in order to keep the Oil prices under control. WTI crude quickly jumped to $59 – its highest since September 20. Brent Crude also hit $64. The current Oil rally, though corrective, has continued to push higher gradually, buoyed by a much softer US-China trade tension. With positive highlights coming this week as well, Oil prices have risen even higher. WTI is now close to $61 and Brent now trades at over $66 – their highest prices in three months. Since October 3, Oil prices have now gained 19%.

If the positivity around the US-China trade deal persists, we should see WTI climb to retest the $63 high. Any pullback whatsoever should be supported around $58-59. Meanwhile, there are lower support levels at $54.8-$56 and $53.6 before the $51.11 low.

Crude Oil performance in 2019

Oil price action in 2019 is sideways and will most probably end that way. However, 36% gain in 2019 YTD is still very significant. Meanwhile, the market is ending worse in the second half of the year that the first half when it hit $66 in April (49% YTD). In all, Oil has performed well considering the shrinking global economic growth spurred by the trade disagreement between the US and China.

Crude Oil analysis: looking ahead in 2020

However, looking into 2020, the OPEC will prepare for a much tougher task ahead. OPEC cannot control geopolitical tensions which, as we have seen this year, can drag Oil prices down as demand growth lowers. The International Energy Agency believes there will be an oversupply in 2020 H1. Geopolitical tensions could hamper OPEC’s plans to cut. If demands can’t meet OPEC’s benchmark supply, there will still be gluts and prices will drop.

In addition, 2020 will host the next US general election. President Trump’s sanctions on Iran and Venezuela is already cutting down supplies by some 2 million barrels per day. If a Democrat wins, this might be reversed and thus weigh on Oil prices as a result of oversupply. This means that OPEC will have more to worry about in 2020 aside from just cutting down production.

Crude Oil Elliott wave analysis: is a triangle pattern emerging?

Since the 2018 Q4 crash from $77 to $42, the oil price has gone sideways on the daily chart. In fact, the triangle pattern started in January 2019 with the highest and lowest levels at $66 and $42 respectively (Charting tools from TradingView).

Oil hits 3-months high

The pattern might continue until early February 2020 before eventually breaking out. In what direction? The immediate trend is bearish. Therefore, the bears will have an upper hand. If the fears discussed above happens, the Oil price will breakdown and head to $35-40 at least. On the other hand, if events turn bullish for the market, we should see a break toward $66 and $77 in 2020 Q1.

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