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According to analysts at TD Securities, crude markets are at a crossroads with ongoing demand worries clashing with the currently supportive supply side dynamics.

Key Quotes

“Despite the recent recovery, in line with risk appetite, toward the mid $50s/bbl in WTI, the narrative surrounding global demand concerns appears to be on the winning side, suggesting prices could very well be set to challenge the $50/bbl handle as global economic data continues to worsen.”

“Energy markets have shown less than encouraging signs recently as the market completely discounted both the physical and geopolitical impacts of the Saudi facility attack in just a couple of weeks, suggesting a fairly negative outlook for crude moving forward as it could not maintain any rally after the largest supply disruption in years.”

“With non OPEC production forecast to grow some 2.2 million bpd, at the same time when global growth continues to slow and 2020 demand expectations are slated to be cut further by the market (currently at 1.3m bpd which we expect could be revised to as low as 1.1m bpd), crude markets could be set for additional material downside as S-D balances are likely to tilt into a major surplus.”

“The market is likely to require deeper and longer cuts, for which Saudi Arabia could have difficulty persuading allies when the cartel meets in December. When the supply side of the equation is the concern, OPEC policy has proven to be successful, but the cartel’s effort may prove fruitless when demand is the issue, raising major concerns for the energy market.”