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WTI prices have rallied nearly 30% in November, reaching pre-pandemic highs beyond $46 per barrel. Bart Melek, Head of Commodity Strategy at TDS Securities, however, warns that the market might be adopting an over-optimistic outlook on oil demand.

Key quotes

“While the most recent Petroleum Status Report is tilted toward the bearish side, traders are very much choosing to focus on unrelated positives such as OPEC+ signals pointing to no return of shuttered production in early-2021, and recent good news on the vaccine front that will help normalize economic activity and petroleum product consumption earlier than expected.”

“Notwithstanding the good news on the vaccine front and hope that the Biden Administration will want to provide sizable stimulus, which is expected to drive demand higher in the US and around the world, the demand side of the equation looks lacklustre in the immediate months due to the impact of the second wave of COVID-19.”

“There could still be additional petroleum product weakness and higher inventories before a material rebound manifests. This combined with uncertainty on the OPEC+ production side (given these relatively high price levels), suggests that crude has gone as high as it can for now. Indeed, a rise in inventories and any pending economic weakness suggests that WTI could slide lower toward the recent trading range.”

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