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WTI pierces below the $58 handle, completing a 50% retracement

  • WTI  continues to bleed from the 2020 YTD highs, completing a 50% mean reversion.
  • Supportive fundamentals yet to be fully priced in.

The price of West Texas Intermediate crude has extended the correction of the October rally beyond a 50% mean reversion following hefty weekly increases in domestic supplies of gasoline and distillates, despite crude stockpiles posting an unexpected decline.

The de-escalation of US-Iranian tensions has helped to catalyze a positioning squeeze in the energy sector and now that the Chinese and US have finally come to an agreement on some aspects of their trading relationship, there is an air of relief and a focus back on real demand and supply fundamentals. Indeed, "a rising trend in stockpiles will serve well to reassert expectations of an oversupplied market in 2020H1," analysts at TD Securities argued. 

As for futures, the West Texas Intermediate crude for February delivery lost 72 cents, or 1.2%, at $57.51 a barrel on the New York Mercantile Exchange, after gaining 0.3% on Tuesday. 

Supportive fundamentals taking a back seat

Meanwhile, some supportive fundamentals come from strength in Chinese oil imports of 45.87mt and OPEC’s commitment to keep the oil prices stable. "Further, talks around OPEC+ postponing its March meeting and extending the production cut deal till June also lent support. The EIA released its monthly report with oil production estimates at 13.30mb/d versus earlier estimates of 13.18mb/d," analysts at ANZ Bank argued.

WTI levels

 

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