WTI in very choppy ranges in distribution territory, eyes on shale market

• WTI struggle in major supply territory and amongst COVID-19 uncertainty. 
• US shale has been hurting and West Texas shale takes the cake.

Crude oil prices gained overnight but have since struggled to maintain the momentum as the price rallies into supply territory in the $40 handle. 

A better-than-expected US jobs report boosted sentiment. The Labour Department reported that payrolls rose by 4.8m in June.

Analysts at AN Bank explained that this built on the momentum created by the bigger-than-expected fall in crude oil inventories in the US yesterday.

The market will have to confront the spectre of rising OPEC supply in the near term. Russia’s Energy Minister said the OPEC+ alliance hasn’t made a decision on extending the deeper cuts past July, but warned that it should avoid repeated changes to the current plan,

the analysts also explained. 

Overall, the Great Rebalancing, which has helped crude oil prices sharply recover, may have entered into a new stage.

However, investors are likely to take heed from the fact that the numbers of US cases rose by 56,800, the biggest daily rise since 9 May.

Worldwide, cases passed 10.7m. The market has become increasingly confident that easing restrictions on travel and business would boost demand for crude oil, but the pandemic’s progress threatens to derail this recovery.

We believe the level of discretionary travel is near its peak, while work-related travel is yet to recover. This suggests the recovery in gasoline demand will plateau until the US economy improves,

analysts at ANZ Bank argued. 

Market participants may have already picked the low hanging fruit

Meanwhile, markets are now wondering as to when the shale production will come back to life. Markets could well have already picked the allow hanging fruit and ate it, and it will now be a matter of gauging whether the next stage of the recovery will be a more challenging one.

US shale has been hurting and West Texas shale takes the cake for the biggest economic collapse. The Permian Basin has been swept by a tidal wave of bankruptcies.

“The collapse of Chesapeake Energy, one of the pioneers of the US shale industry, took few people by surprise,” the Guardian reported this week

For the time being, we expect some stabilization in production but do not anticipate that production will grow at a pre-pandemic pace for the foreseeable future. With that said, trend follower positioning remains constrained across the complex amid a high volatility environment.

Analysts at TD Securities explained. 

WTI Levels