WTI to surge above $42 when demand and supply expectations turn more positive – TDS

Rising US stockpiles, demand and OPEC supply uncertainty are pressuring the crude oil complex. WTI has dropped just over 6 percent to only $37.16/b, which is very near technical support (200-daily moving average). Nonetheless, strategists at TD Securities are optimistic and expect crude to move above the current $42/bbl resistance.

Key quotes

“While the market had both positives and negatives in the latest Petroleum Status Report, with a positive skew, the market very much chose to focus on the negatives. Crude oil stocks again added a negative tone to the market as inventories jumped an unexpected 4.3 M bbls vs a predicted 1.5 M increase. Adding to this negative is the unexpectedly large increase in imports (546K b/d) and the outsized 1.2 M b/d jump in US oil production.”

“With COVID-19 again raging throughout the world, the US election race heating up and no new fiscal stimulus plan in sight, markets are quite concerned demand will not recover as quickly as previously anticipated. Renewed lockdown measures across Europe have rekindled demand concerns, at a time when there is still uncertainty as to whether OPEC+ will delay the scheduled return of some two million b/d of shuttered production back into the market in early-2021.” 

“Given that the US and global demand recovery should get back on track in the coming months, as the US likely passes a stimulus bill after the election, a COVID-19 vaccine starts to be administered to vulnerable populations and OPEC+ likely postpones the introduction of new supply to the global market place, we don’t believe prices have that much further to go. Indeed, we believe that crude moves well above the current $42/bbl resistance, once both demand and supply expectations turn more positive.”