Crude oil prices hold near two-month high
Upbeat data lifts dollar
LONDON, Nov 23, (RTRS): Oil prices held near two-month highs on Friday, set for a third consecutive week of gains on expectations of an extension to OPEC+ production cuts, though concern over USChina trade talks continue to hang over the market.
Brent crude futures eased 13 cents to $63.84 a barrel by 1442 GMT and West Texas Intermediate (WTI) crude futures dipped by 26 cents to $58.32.
Prices touched their highest since late September on Thursday after Reuters reported that the Organization of the Petroleum Exporting Countries (OPEC) and Russia are likely to extend existing production cuts by another three months to mid-2020 when they meet over Dec 5-6.
The group will also emphasise the need for stricter deal compliance from the likes of Iraq and Nigeria.
“A disciplined approach from Iraq and Nigeria should shave off another 300-400,000 barrels per day (bpd) from the group’s production level leading to a balanced market in the first half of 2020 and to a possible supply deficit in the second half,” said oil brokerage PVM.
The current agreement is for a production cut of 1.2 million bpd until the end of March.
Uncertainty over whether the United States and China will be able to reach a partial trade deal that would lift some pressure on the global economy kept a lid on prices.
Chinese President Xi Jinping on Friday said his country wants to work out an initial trade pact with the United States and has been trying to avoid a trade war but is not afraid to retaliate when necessary.
Strike
China has invited top US trade negotiators for a new round of face-to-face talks in Beijing as efforts continue to strike at least a limited deal, the Wall Street Journal reported on Thursday, citing unidentified sources.
“The key factor for the demand outlook for oil is the trade negotiation,” said Michael McCarthy, chief market strategist at CMC Markets and Stockbroking in Sydney.
“With oil near the top of recent trading ranges it’s no surprise to see a bit of selling pressure.”
News last week of the biggest drawdown for three months in US crude stock stockpiles at Cushing, Oklahoma, also underpinned prices this week. Cushing is the delivery point for WTI futures.
Meanwhile, the US dollar shook off early weakness to advance against a basket of currencies on Friday, after data showed US factory and services activity quickened in November in a sign of the continued resilience of the US economy.
IHS Markit said its “flash” purchasing managers index (PMI) for manufacturing rose to 52.2 in November from a final reading of 51.3 in October, while its preliminary services PMI increased to 51.6 this month from 50.6 last month.
The dollar index, which compares the dollar against six major currencies, was up 0.24% at 98.23.
Helping the dollar’s strength was a survey which showed euro zone business growth almost ground to a halt this month as activity in the bloc’s dominant services industry increased at a much weaker pace than expected and among manufacturers it contracted again.
The common currency fell 0.28% against the greenback.
“That combination is what is pulling the dollar a little higher,” said Vassili Serebriakov, an FX strategist at UBS in New York.
Rise
Despite the rise on Friday, the dollar has remained largely rangebound over the last few sessions. For the week, the dollar index is up 0.24%.
Mixed messages on the USChina trade deal this week kept investors from taking on any large directional positions ahead of next week’s Thanksgiving holiday.
Chinese President Xi Jinping said Beijing wants to work out a deal with Washington and has been trying to avoid a trade war – but is not afraid to retaliate when necessary.
A senior Chinese diplomat urged the United States to compromise in order to develop stable relations between the countries, saying that some U.S. politicians were trying to push the countries into confrontation.
Meanwhile, volatility in the currency market has plunged in recent days with the Deutsche Bank FX Volatility Index slipping to 5.86, its lowest since mid-July.
“The dollar is relatively expensive but I think the market is really looking for signs of a stronger global growth rebound to revive interest in some of the currencies outside of the US but the messages that we are getting are still a bit mixed, both in terms of the PMIs and the news on trade,” said Serebriakov.
Bethany Beckett, assistant economist at Capital Economics said the flash PMIs for November provide further evidence of a stabilization in the industrial sector.
“But with labor markets on the cusp of a marked slowdown, overall economic growth is likely to remain subdued for a while yet,” Beckett said in a note.
Elsewhere, the pound dived on Friday and was on pace for a weekly loss after surveys showed British business suffered its deepest downturn since mid-2016, with caution rising before a Dec 12 general election. The pound was 0.6% lower at $1.2836.