Oil: Deficits support higher prices – TD Securities
TD Securities’ Ryan McKay argues that Crude Oil is far from oversupplied, with high-frequency global and Chinese balances still pointing to tightness. McKay expects ongoing market deficits, inventory drawdowns and the rebuilding of buffers to keep prices elevated, projecting a recovery toward $90/bbl and possible extension toward $100/bbl as structural tightness persists.
Structural tightness and deficit outlook
"Our high-frequency estimates of global and Chinese supply-demand balances, along with Middle Eastern production, continue to point to market tightness despite increased flows through the Strait of Hormuz. Ongoing market deficits, inventory drawdowns, and longer-term rebuilding of market buffers should see prices recover toward $90/bbl, with potential for a move toward $100/bbl."
"Flows through the Strait of Hormuz have increased notably since the signing of the MoU [Memorandum of Understanding], as stranded tankers have quickly rushed for the exit. This has seen a flush of supply in the market that is being mistaken for a supply glut. However, looking forward, as the market becomes reliant on production increases rather than floating storage, flows are likely to tighten again."
"All pre-war slack has been removed from the system, and every conceivable and unexpected lever of flexibility has been pulled to avoid catastrophe. The market has priced this avoidance as a combination of relief and optimism, while also placing an overexaggerated focus on the near-term temporary supply and the start of a supply recovery. While the right tail outcomes for crude pricing have thinned, prices should still settle higher than pre-war levels, given the fundamental damage that has taken place."
"Based on this production recovery profile, we continue to expect market deficits of roughly 2.5-3m b/d in crude and at least 1-2m b/d in products through July and August, before the market moves into a more balanced state in September. We expect these deficits to persist despite higher flows, as a slowdown in SPR releases and lower U.S. exports driven by domestic inventory tightness offset part of the increase in supply."
"In this sense, a system that remains structurally stretched relative to recent history will warrant structurally higher prices."
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
Wall Street giants collectively raise rate hike forecasts, US Treasury futures continue to fall, gold drops over 1% to break 4000
After the US October CPI exceeded expectations, Goldman Sachs and Nomura added a forecast for an interest rate hike in March next year, while Deutsche Bank included a forecast for a rate hike in January next year. Currently, the market has fully priced in a 25 basis point rate hike in December, with a 13% probability for a 50 basis point hike. On Wednesday, the US Treasury spot market was closed, but Treasury futures continued to fall, with corresponding yields rising by about 2 to 4 basis points, and spot gold came under pressure, dropping by 1.1%.
No Need to Worry About the Cooling Down of AI Data Center Construction? The US Import Boom Is Unlikely to Subside in the Short Term, Real Impact May Come in 2029
It takes an average of 4.8 years from finalizing investment to starting construction of a data center project, and an additional 2.6 years from construction start to becoming operational. Servers usually cannot be installed until after the building structure and racks are completed. For trade partners such as Taiwan (China), South Korea, and Mexico who rely on US data center supply chain demand, the inertia in construction timelines provides at least a one- to two-year buffer for future exports.
Federal Reserve Major Debate: When Should the Tenure of “Number Three” Williams End?
The main point of contention is whether Williams should step down in June 2028, upon completing a full 10-year term, or in June 2027, when he reaches the mandatory retirement age of 65. Analysts point out that the Federal Reserve Board holds ultimate discretion; if he leaves early, Fed Chair Waller would be able to assert greater control over the appointment to this critical position. However, forcing Williams to shorten his term could easily be interpreted as political manipulation. Williams himself is expected to serve until June 2028.
Crypto prices
More
