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Despite the sharp decline on crude inventories reported by the EIA, the FX & Commodities Strategy Team at TD Securities affirm that oil prices might face headwinds to extend their last month’s rally. WTI prices are likely to reach the $40 target although they warn about the possibility of a reversal first.

“The overall Petroleum Status Report was mixed. This suggests that there is not enough good news to lift crude higher, after nearly a 70% jump from early-May levels.”

“At this point, the market is pricing in a very optimistic scenario on both sides of the supply-demand equation. As such, a modest reversal is quite possible too.”

“The combination of additional cuts from key producers likely means that the massive inventory accumulations will clear by year-end. This will likely mean that WTI crude may well reach our $40s target months ahead of schedule, but first, there may well be a modest reversal.”