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According to analysts from TDS, crude oil has joined industrial metals in reflecting a micro-macro dichotomy, as sour market sentiment keep prices below fundamentally determined levels. They see Brent outperforming WTI amid US-Global flow dynamics.

Key Quotes:  

“While the recent record-setting crude correction was sparked by deterioration in risk appetite, it has been made possible and exacerbated by a steep rise in OPEC+ and US shale output ahead of the implementation of sanctions on Iran. The issuance of waivers to key consumers of Iranian crude, an unusually sharp reduction in refinery runs, and global demand concerns have all conspired to take the spotlight and pummel fear of oversupply into crude markets.”

“Expected OPEC+ supply growth reversal starting in December and declines in Iranian shipments later in the year should also serve as an important development contributing to the widening of the Brent-WTI differential in 2019.”

“Our models suggest that Brent prices should average $80/bbl in 2019, while WTI looks set to average $67/bbl. Considering the momentum shock in crude markets, which prompted WTI crude to break a multi-decade record for consecutive declines, we expect that a catalyst may be needed for prices to catch up to fundamentals in the near-term.”

“Considering the cost of carry associated with the recent re-emergence of a contango curve structure, we think taking flat price-risk may not be the best way to express our view. Rather, we hold strong conviction that current prices for Dec19 WTI-Brent at $-8.8/bbl provides an attractive opportunity to play our view on relative global supply/demand dynamics, with a potential for a significant widening below $-15/bbl.”