Oil futures rose more than 1% on Tuesday

Recap: Oil futures rose more than 1% on Tuesday, with WTI trading above $61.00 a barrel for the first time since mid- September and Brent breaching $66.00 in equally as much time. Prices were supported by hopes that a trade deal between the U.S. and China would boost demand for oil in 2020, along with expectations that U.S. crude oil inventories decreased by 2.5 million, were behind the higher move. January WTI gained 73 cents, or 1.2%, to settle at $60.94 a barrel. Brent for February delivery added 76 cents, or 1.2%, to settle.   January RBOB rose 1.4% to $1.6857 a gallon, while January heating oil rose 1.4% to $2.0334 a gallon.  

Technical Analysis: February WTI, the soon to be spot contract, tackled the 200-day moving average, as it too closes in on $61.00. As mentioned in Monday’s commentary, we expect the market to encounter a bit of resistance between current levels and the $62.50 level. Although we would not discount a move to this level, we believe that this market has a lot of work to do before getting there. There is resistance set at $62.08, the 50% retracement set by the October low of $51.27 and the April high of $72.90.  Support is set at $59.60 and $58.73.

Fundamental News: JP Morgan raised its price outlook and forecast supply-demand balance to tighten next year against the backdrop of OPEC and its allies increasing its output cuts and stronger economic growth in emerging markets.  It revised its Brent price forecast to $64.50/barrel in 2020 from a previous estimate of $59/barrel, although it expects prices to fall to $61.50/barrel in 2021.  WTI prices are expected to average $60/barrel in 2020 and $57.50/barrel in 2021.  JP Morgan continues to expect global oil demand growth at 1 million bpd. 

Libya reopened five of its oil terminals, Brega, Marsa el-Hariga, Bouri, Ras Lanuf and Es Sider, after they were closed on Sunday due to bad weather.  The loadings halt resulted in a minor loss of production.  The majority of the oil exported from the ports comes from the Waha fields, where output has recently averaged about 350,000 bpd. 

According to the S&P Global Platts trade flow software cFlow, US Gulf Coast middle distillate shipments to Europe for December arrival were scheduled at 510,000 metric tons as of Monday, with 240,000 metric tons bound for Northwest Europe and 270,000 metric tons planned to arrive in the Mediterranean.  It is up on the two previous months, with about 430,000 metric tons arriving from the US in November and 310,000 metric tons in October.  

Fitch Ratings agency stated that the “phase one” trade deal between the US and China has eased trade tensions but renewed escalation remains a significant risk.  It said tensions between the US and China, particularly in fields such as technology, will pose a major obstacle to full resolution of the trade war.  It expects China’s economy to grow by about 6% in 2020, compared with its earlier forecast of 5.7%, following the initial trade deal. 

US Trade Representative, Robert Lighthizer, said the US may increase tariffs on European goods as it seeks to cut its trade deficit with the continent.  He told Fox Business Network that recently imposed tariffs on $7.5 billion worth of European goods as part of the Boeing-Airbus aircraft subsidy dispute could be increased as the two sides try to negotiate a settlement.  He said the US goods trade deficit with the European Union could reach $180 billion in 2019 and the US needed to find ways to sell more goods to Europe.  Separately, US Trade Representative said the US Congress should easily approve a revised North American trade agreement and increased trade flows will increase US GDP by a third to a full percentage point.   

Early Market Call - as of 8:45 AM EDT

WTI - Jan $60.60, down 34 cents

RBOB - Jan $1.6624, down 2.32 cents

HO - Jan $2.0163, down 1.7 cents