By Barani Krishnan
Investing.com - Both the bulls and bears are trapped in the China hole.
The back-and-forth theater of the trade deal has been vexatious for even the most patient trader, and there’s no one presumably who doesn’t want it to end quickly.
What began nearly two years ago ostensibly as a U.S. attempt to set right some trade practices with China has become a game of high-stakes political chess between Presidents Donald Trump and Xi Jinping.
And caught in the crosscurrents of this play across markets are traders of all assets and securities, including, of course, commodities.
If anything, the week that was proved the treacherous conditions the trade war has put particularly oil traders in.
While the bulls appear to have the upper hand now in the daily fluctuations of crude on the notion that it might be a question of “when” rather than “if” for a trade deal, staying on the positive side of the market is proving easy.
Olivier Jakob of Zug, Switzerland-based oil risk consultancy PetroMatrix chronologized it perfectly in his Friday note:
“The headlines of Wednesday were about delays to a possible meeting between Trump and Xi. The headline yesterday morning was that a framework agreement had been found; the headline yesterday evening was that there was some internal resistance in the U.S. administration for that agreement. Today we will surely get more contradictory headlines about China.”
True enough, U.S. West Texas Intermediate and Brent both had their largest intraday swings in a month on Friday as the market went from a “yes, we’re rolling back tariffs” to a “no, we’re not” before settling on a “alright, maybe we will.”
Oil bears, meanwhile, can’t wait for the whole hocus-pocus to end, with many certain that oil will be back at $50 per barrel - or even lower - once Presidents Trump and Xi sign what is supposed to be the trade deal of the century.
The trade war wasn’t the only thing vexing oil bulls.
A big build in weekly U.S. crude stocks almost neutered the oil rally.
But the 7.9 million-barrel spike in crude inventories reported by the Energy Information Administration amid 30-month lows in U.S. oil rig count also led to charges that the EIA’s methodology in calculating stockpiles was all wrong.
As though these weren’t enough, the Saudis who control the Organization of the Petroleum Exporting Countries leaked to the press plans to enforce stricter compliance of OPEC’s existing 1.2 million barrels per day in cuts, rather than ask for deeper production reductions in December. That wasn’t exactly what the oil bulls had in mind.
Yet, West Texas Intermediate crude settled up settled the week up 1.9% at $57.24 despite a $1.60 swing on Friday.
London’s Brent crude settled up 1.3% on the week at $62.51 after a $1.80 move between the highs and lows of Friday.
The trade war shenanigans continue Monday.
Monday, Nov 11
Genscape Cushing crude stockpile estimates (private data)
Tuesday, Nov 12
American Petroleum Institute weekly report on oil stockpiles.
Wednesday, Nov 13
EIA weekly report on oil stockpiles
Thursday, Nov 14
Friday, Nov 15
Baker Hughes weekly rig count.
Precious Metals Review
Global markets can’t decide where the U.S.-China negotiations are going yet hopes for a trade deal remained alive on Friday, prompting safe-haven gold to finish with its biggest weekly loss in three years.
Gold futures for December delivery on New York’s COMEX settled down $3.50, or 0.2%, at $1,462.90 per ounce after plumbing three-month lows for a second straight day at $1,457.10. For the week, it fell 3.2%, its most for a week since November 2016.
“It's been a tough week for gold bugs,” TD Securities said in a note. “With algorithmic selling still the order of the day, which further saps liquidity from the market, the overextended long positions are in for more pain ahead.”
The Canadian bank-backed brokerage estimated that the weighted average breakeven entry price for longs on COMEX stood at $1,434/oz, suggesting more pain ahead.
“The fact that gold's preliminary open interest appears to have actually crept up, suggesting fresh shorts and sticky length, supports our view that more long liquidations could be ahead,” it said.
Still, not all might be lost for those still hopeful for a gold comeback, TD Securities said.
“An interesting point of note, our analysis of the weekly positioning deltas highlights that a significant amount of length has been accumulated in the $1,425/oz - $1,450/oz range, with an estimate of net 54,000 plus lots built in that region in the last year.”