WHILE the most recent Petroleum Status Report tilted firmly into positive territory, the crude market has taken a cautious stance despite the bullish inventory report. In the long-run, strategists at TD Securities forecast WTI near the $50 level while Brent is expected to trade a few dollars higher.
“The EIA reported crude oil inventories dropped a larger-than-expected 3.1M bbls vs an expected 2.2M bbl decline. Adding to this somewhat positive data, was the lower-than-expected one million bbl build in gasoline and a very small 167K bbl increase in distillate inventories. The trade side of the supply-demand equation was also tilted toward the positive as exports growth of 793K b/d was outpaced by import decline of 1.055 million b/d. Also, on the positive side for prices was the 100K b/d US crude oil supply decline and the 800K b/d jump in petroleum product demand.”
“The market is apprehensive to move WTI above the recent highs near $48/b and Brent above $51/b as US economic data has clearly entered a downward trajectory, while we may see demand growth throttled back into the New Year. There is also a risk that OPEC+ may be reluctant to be as ’disciplined’ as it has been in reintroducing its excess capacity into the market, given the current high prices. As such, there are risks that crude oil may migrate lower over the relative near-term.
“Longer-term, we see WTI approaching $50/b once the economy normalises and demand is on target to grow the expected six million b/d in 2021, with Brent a few dollars higher.”
“Crude markets are set to firm as the negative impact of the second wave of COVID-19 abates, the vaccine programme widens and the US government finally makes it clear that new fiscal support is coming.
“Given that OPEC+ has very sizable excess capacity that will exceed demand growth, which it wants to reintroduce into the market, crude oil prices should not be expected to surge much above our targets next year.”
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