Oil: Steady demand and less production point to upside – TDS

Bart Melek, Head of Commodity Strategy at TD Securities, reviews the last oil inventory. Stock reduction along with demand recovery draws an optimistic outlook for the black gold. WTI, which trades at $42.66, -0.3% on a day, could test the recent highs at $45.

Key quotes

“Crude oil stocks once again plunged a much larger-than-expected 4.5 million bbls (consensus was calling for a 2.2 million decline). Also on the bullish side, imports fell 389K b/d, with exports growing 324k b/ d and production was down by a very large 300K b/d to just 10.7 million b/d. Furthermore, product demand continued to increase, rising 1.457 million b/d.”

“On balance, the report is modestly positive. With US demand likely continuing to recover as the federal government adds another trillion dollars worth of stimulus, as therapeutics and a vaccine for COVID-19 emerge and the rest of the world slowly opens up, crude oil demand should move on an upward trajectory into 2020. This, along with OPEC+ supply discipline and US shale oil industry weakness suggests that the existing inventory overhang should erode materially over the next four months and beyond.”

“While WTI crude may test recent highs, moving toward resistance just under $45/bbl, it is unlikely to move into a significantly higher trading range anytime soon. There will continue to be demand risks due to COVID-19 and OPEC+ will likely match supply to growing demand.”