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The relatively risk favourable reaction across risk assets suggests traders are lukewarm to risk friendly on the White House executive order.

The hope is the $400 stipend will bridge the burden gap until Congress eventually inks a deal before September.

But the big elephant in the room for oil markets this week is the August 15 trade talks as tail risk has increased in both directions. Indeed, the fat tail for oil markets is if the trade talks end up in economic fracturing, and could lead Trump to roll back the Phase 1 trade deal and even to heap on more tariffs, which would be grim for the nascent economic reopening recovery.

Still, there’s a small undercurrent of positivity this morning emanating from comments by Saudi Aramco who are seeing a recovery in demand.

And while there might be a better stipend on offer once Congress stops bickering and gets down to business, but for now, US consumers are in a much better spot as a bird in the hand is worth two in the bush.

Brent pushed briefly through $45 per barrel last week, the highest level since March this year, following another large US crude inventory draw.

Oil prices remain in a tight range

Oil remains in a relatively tight trading range with upside capped by concerns about the pace of the post-COVID-19 macro recovery and rising OPEC+ and US supply.

Oil markets traded softer into the weekend on the back of escalating US-China tensions. Although prices bounced favourably on the US employment data, they were unable to hold on to their gains given the geopolitical overhang.

Still, crude markets continue to test the upper bound of its recent trading range supported by OPEC unwavering compliance commitment, reaffirmed when Saudi Arabia and Iraq energy ministers made a joint statement to say that they are fully committed to the OPEC+ oil production agreement.

And the dour outlook in the US shale complex as drillers curtailed exploration in the US fields to a 15- year low. However, Saudi Arabia and Iraq forging better relationships over the oil deal are excellent for the compliance outlook.

This week oil markets will be focused on August 15 trade talks, which loom ominously as China’s energy imports will be discussed. Any war of words in the lead up which could provide a foreshadowing of things to come will also be scrutinized.

While tail risks have increased in both directions, worryingly for risk markets, this will be an assessment of intent rather than a pat on the back for compliance. And given the recent White House lash outs towards China, a lot can go sideways.

Biden’s polling numbers still holding up

But on a more calming note with Biden’s polling number are still holding up, so there’s an excellent chance President Xi will hold fire and continue to play the waiting game anticipating a political change in the White House where the hope is US-China relations can move forward on a more cordial manner.

Outside of the US-China frictions, which we expect to be a weekly affair between now and US election day, the primary oil narrative is still focused on coronavirus infections’ resurgence being the main uncertainty around demand.

Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp