Upbeat Comments from Chinese Official May Trigger Continuation Rally

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trying to recover from earlier losses caused by negative headlines about U.S.-China trade relations. This follows yesterdays spectacular rally that was triggered by a better-than-expected U.S. government inventories report.

Todays earlier selling pressure was created by reports saying a trade deal may not be signed until early next year. Another headline said China and U.S. negotiations have hit a snag over the rollback of tariffs. Still another claimed China may walk away from negotiations because of a disagreement over Hong Kong protesters.

At 09:48 GMT, January WTI crude oil is trading $56.73, down $0.28 or -0.47% and January Brent crude oil is at $62.09, down $0.31 or -0.50%.

Crude prices began to mount a comeback after Chinas top negotiator reportedly expressed optimism in sealing a deal.

Bloomberg reported mid-morning that Chinese Vice Premier Liu He said he was cautiously optimistic in reaching a phase one deal, but added that he was confused about U.S. demands.

The market is also being underpinned by positive comments from Gao Feng, Chinas Ministry of Commerce spokesman.

China is willing, on the basis of equal and mutual respect with the U.S., to work together to properly settle areas of common concern and strive for a phase-one trade agreement, Gao Feng, Chinas Ministry of Commerce spokesman, said at a regular press conference Thursday, according to CNBCs translation of his Mandarin-language remarks.

Gao also said external rumors about the trade talks are not accurate, and noted the two trade delegations remain in close communication.

U.S. Energy Information Administration Weekly Inventories Report

On Wednesday, the EIA reported U.S. crude stocks rose by 1.4 million barrels in the week to November 15, compared with expectations for an increase of 1.5 million barrels. It was also significantly lower than the 6 million barrel gain that the American Petroleum Institute (API) data showed late Tuesday.

Crude stocks at the U.S. futures delivery hub of Cushing, Oklahoma fell by 2.3 million barrels. The EIA also reported a 1.9-million barrel build in gasoline inventories for the week before, and a decline of 2.5 million barrels in distillate fuel inventories.

Additionally, the EIA said refineries last week produced 10.1 million bpd of gasoline, down from 10.2 million bpd a week earlier. Distillate fuel production averaged 5.1 million bpd, compared with 5 million bpd a week earlier. The average crude oil processing rate last week was 16.4 million bpd, compared with 15.9 million bpd a week earlier.

Daily Forecast

With the new comments from Chinese officials, the chances of a continuation of yesterdays rally have gone up. But were going to have to wait until the U.S. opening at 13:00 GMT to see if the buying volume is strong enough to take out yesterdays high and punch through technical resistance.

Furthermore, this weeks whipsaw action may keep some traders on the sidelines until there is more concrete news over the progress of the trade deal talks.