Crude futures settled lower Monday on skepticism surrounding the partial agreement reached in the US-China trade dispute.
NYMEX November crude settled $1.11 lower at $53.59/b, while ICE December Brent settled at $59.35/b, down $1.16.
In refined products, NYMEX November ULSD settled 4.25 cents lower at $1.9151/gal, and November RBOB settled 2.56 cents lower at $1.6132/gal.
The US and China reached a partial agreement Friday that covers agricultural purchases, financial services, currencies and intellectual properties.
US President Donald Trump said on Twitter late Sunday that the US will not increase tariffs on Chinese goods from 25% to 30% starting Tuesday. He also said China has begun purchasing agricultural products from US farmers.
However, according to CNBC, US Treasury Secretary Steven Mnuchin said the next round of tariffs on Chinese goods will take effect in mid-December if the US and China do not reach a full trade agreement.
"It appears that the results of Friday's trade talks are not seen as going far enough. What is more, the US and China are still far from reaching a comprehensive agreement," Commerzbank said in a note Monday.
"In our opinion, this [trade agreement] appears to be similar to past trade talks where by the situation appeared rosy, before eventually crumbling down again," said Samuel Siew, investment analyst at Phillip Futures.
The bearish economic outlook has weighed on oil demand growth projections.
The International Energy Agency on Friday lowered its estimate of global oil demand growth for next year, as well as the call on OPEC crude in the first half, on the back of reduced expectations for the global economy.
In its monthly oil market report, the IEA cut its 2020 demand growth estimate to 1.2 million b/d, from 1.3 million b/d, largely in response to sharp downgrades to GDP growth this year and next by the Paris-based Organization for Economic Cooperation and Development on September 19, in turn reflecting trade disputes, reduced investment growth, and Brexit uncertainties.
OIL EQUITIES LAG
Oil producer equities have underperformed the broader market, with the S&P 500 Oil & Gas Exploration & Production index down 4.9% through October 11 against an 18.5% gain for the S&P 500.
Still, barring a recession, slowing productivity gains among US producers and lower capital spending may bolster sentiment in 2020, analysts say.
"We see a potential inflection in equity sentiment in 2020 ahead of [an] improved fundamental oil supply-demand outlook in 2021," Goldman Sachs analysts said in an Monday report.
The analysts said lower capex has investors captivated by the risks of lower top-line growth rather than "the potential" growth in free cash flow from a rebound in oil prices that might come from the reduced spending.
"Investors, in our view, are focused on the downside risks to 2020 oil prices and are not focused on a post-2020 supply-demand inflection to a multiyear period where OPEC growth is needed from a multi-year period where OPEC declines were needed," the Goldman Sachs analysts wrote.
The analysts expect bearish sentiment will likely weigh on oil equities "until we see greater confidence in a runway for OPEC to increase production" without pushing Brent prices below $60/b.
Raymond James analysts said Monday they expect US supply growth will be approximately 430,000 b/d in 2020, almost 1 million b/d lower than consensus.
Together with "modestly lower" than expected oil demand growth this year and an estimated 150-million-barrel hit in the second half of 2019 to Saudi oil supply from a September attack on their infrastructure, "the sum of these supply demand changes actually leaves our supply/demand balance more bullish than it was in July," the analysts said.
Even so, Raymond James lowered its 2020 oil price estimates "to accommodate the recent bearish price reaction and overall market pessimism."
