Brent rose $3.17/bbl last week to average $66.84/bbl while WTI rose $2.93/bbl to average $56.81/bbl. After a strong week, prices today have fallen sharply, despite recent announcements on the US-China trade deal. Prices could have trouble finding direction this week, but are unlikely to continue falling sharply. Brent will likely average $65/bbl this week.
Late Sunday President Trump and Xinhua (China’s state-run news agency) announced “significant progress” on the trade negotiations. President Trump has announced that the March 1 tariff increase will be delayed so that negotiations can progress. We eventually expect to see a formal agreement between the two sides but are not confident that actual change will occur. China has a record of agreeing to business terms and then slow-playing their implementation.
While the economic news is supportive for future demand expectations, prices still fell early Monday. President Trump took to Twitter to call on OPEC not to raise prices and Brent fell nearly 3%. Prices should recover though as OPEC is unlikely to heed Trump’s suggestion. However, there have been increasing cracks appearing in the OPEC deal. Multiple countries have expressed frustration with the agreement and the fact that it offers an advantage to producers not involved with the deal (aka the US). This raises the possibility that the deal is not extended at OPEC’s next meeting in April. If the deal were to dissolve, prices would fall on expectations of increased global supply.
Two geopolitical items to watch this week: Vice-President Mike Pence is scheduled to meet with Venezuela’s interim-President Juan Guaidó where he could ask for the US and other countries to physically intervene and help remove Maduro. Additionally, Nigeria held its delayed presidential election over the weekend but official results have not been announced. While violence was relatively low during elections, a disputed election could lead to more widespread upset.
Geopolitical – Positive
Dollar - Negative
Trader Sentiment – Positive
Supply – Negative
Demand – Neutral
Refining Margins - Neutral