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Oil rebounds from lower inventories to close at cycle highs.  What to watch

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WTI up 87 cents to $ 81.31, Brent up 82 cents to $ 84.00

This is a new seven-year closing high for WTI and a new three-year closing high for Brent. Notably, Brent is approaching the 2018 high of $ 86.74.

I tend to take some off the table before that, but when you see price action like today, it’s difficult. Today’s inventory data was negative, with crude supplies increasing much more than expected and revenue being pulled roughly at the pace of the API report. In addition, implicit demand has fallen.

Maybe there are some one-off cases that I haven’t heard of yet, but it certainly sounded like a reason to sell and that’s exactly what happened during a drop to 80, $ 37 versus $ 81.25. Again, falling buyers waited in the weeds and offered rough up to $ 81.40.

CIBC today issued a note saying oil markets could be under-supplied if the winter is cold.

EIA estimates year-end demand could be around 101.1 MMBbl / d versus supply at 99.9 MMBbl / d (including current OPEC + plan to restore production levels) , suggesting a further reduction in world stocks. Current OECD stocks stand at 2,142 MMBbl, or 115 MMBbl below the historical five-year average. The main factors that could drive up the price of oil are: cooler than expected temperatures, favoring the switch from gas to oil; greater discipline of capital on the part of producers; and a faster-than-expected economic recovery after the pandemic. The bar / line chart in Exhibit 2 shows sensitivity to projections of expected supply and demand for next year.

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