On Friday, President Trump tweeted positively about the trade negotiations with China.
Markets reacted quickly and very positively to this statement. WTI was already up 1.6% by 2:00 pm. The stock market also rose excitedly.
And then news broke Friday afternoon that the partial agreement to ease the trade war and lead to a broader deal.
There is obviously a long way to go before the United States and China reach a final agreement. However, it is worth considering at this point what might happen to the price of oil if the world’s two largest economies reach a long-term agreement. Over the last year, oil prices have been pushed down because of fears over the trade dispute, a global economic slowdown and decreased demand growth. If those fears turn out to be unfounded, it could rock the market.
Traders, analysts, banks and industry have all priced in economy decline and a continuing trade war into their assessments of future oil prices and oil demand. If suddenly the President announces that a trade agreement has been reached, all of the assumptions and analyses will have to be thrown out. Suddenly there will be the very realistic possibility that global economic growth could accelerate. In that case, who knows how high the price of oil might soar.