Key Moments
- TD Securities flags a potential $2-3/bbl decline in crude prices as near-term fundamentals loosen.
- Supply-side tightness is easing, with export flows from Novorossiysk expected to recover as CPC’s SPM-3 returns from maintenance.
- Chinese stockpiling appears to have paused in January and upcoming peak refinery maintenance season is set to curb near-term demand.
Bearish Shift in Oil Market Fundamentals
Ryan McKay of TD Securities points to a meaningful change in crude oil market conditions that could undermine the latest price rally. According to the report, softer near-term fundamentals are emerging, creating scope for a pull-back in benchmark prices.
The analysis states: “We expect that a loosening of near-term fundamentals could shave at least $2-3/bbl off the latest crude oil rally, and should see the aggressive backwardations ease. We note that a major supply-altering event in Iran would nullify this, but also highlight that additional downside is possible should the easing of geopolitical risk premium coincide with the weakening fundamentals.”
Improving Supply Conditions
On the supply side, TD Securities observes that factors which previously lent support to crude prices are starting to fade. The report highlights that export flows from a key Black Sea hub are positioned to increase as infrastructure comes back online.
“Supply side issues that supported the market are now easing. Export flows from the port of Novorossiysk should recover notably as the third mooring (SPM-3) at CPC terminal is back from maintenance.”
| Factor | TD Securities Assessment |
|---|---|
| Near-term fundamentals | Loosening, potentially reducing prices by at least $2-3/bbl |
| Backwardation | Expected to ease as fundamentals weaken |
| Novorossiysk exports | Seen recovering with SPM-3 at CPC terminal back from maintenance |
| Geopolitical risk premium | Further downside possible if risk premium eases alongside weaker fundamentals |
Softening Demand Indicators
The report also underscores potential headwinds on the demand side. It notes that a key source of recent buying interest appears to have paused, while seasonal factors are set to temporarily reduce crude intake by refiners.
“Near-term demand could also take a hit as it appears the Chinese inventory stockpiling impulse has paused in January, with inventories actually drawing throughout the month. Furthermore, peak refinery turnaround season is around the corner, which will reduce refiner demand, leaving additional barrels available to the market.”
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