WTI fends of $80.00 level for now despite growing cloud of worries

• WTI recovered from an earlier dip under $80.00 and now trades flat and closer to $81.00.
• Some commodity strategists argued speculation over the US tapping the SPR was overdone.

Front-month futures for the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, shrugged off earlier selling pressure that threatened to send prices below $80.00 and back towards monthly lows at $78.28 to trade flat near $81.00. Nonetheless, a cloud of worries is building for crude oil markets. 

Analysts are concerned about a potential hit to crude oil demand in Europe this coming winter as Covid-19 infection rates rise and countries tighten health-related restrictions. Meanwhile, there was more verbal pressure from the White House at OPEC+ over their sluggish output hikes and jawboning from Democrat lawmakers in favour of releasing US crude oil reserves. Other touted concerns include the strengthening US dollar and global inflationary pressures that might pull forward central bank tightening, stifling economic growth (and the outlook for crude oil demand).

Traders also pointed to comments from the UAE’s Oil Minister about how global oil supply is likely to return to a surplus in Q1 2022 as US shale comes back online. London-based energy research house Rystad Energy said on Monday that US shale would likely return to its pre-pandemic output levels of 8.68M barrels per day in December.

A few commodity strategists argued that speculation about a move by the US to tap the Strategic Petroleum Reserve (SPR) had gone too far, which explained how crude oil prices were able to recover later in the session. But WTI is showing little sign of being at the beginning of posting a recovery all the way back to last week’s highs close to $85.00.

Speaking to Reuters, Louise Dixon, senior markets analyst at Rystad Energy, said “the market now seems to be less concerned about the current supply tightness, expecting it to be short-lived”. “Traders are instead refocusing on the return of two bearish factors – the possibility of more oil supply sources and more COVID-19 cases” she added.