With WTI crude prices up 51% since early February, Macquarie Capital’s Vikas Dwivedi is calling for a short term correction back to the back to mid-$30 to low $30 range.
Dwivedi sees several short term factors impacting the price:
- Iran exports up 500 K BPD in the next two weeks
- KSA loadings up 300 K BPD vs Q415
- Global T/A will reach 5.7 MM BPD in mid April
- ETF outflows may accelerate
- U.S. crude imports likely to stay at or above 7.5 MM BPD
- USD weakness has slowed and reversed
- Ceyhan and Forcados crude supplies returning
The analyst said the rally was likely initiated by a combination of institutional and retail capital inflow. The positive price action has been accelerated by several waves of short covering since mid-February. The USO once again has dominated ETF capital inflows adding nearly 40 K contracts of YTD length to the front month WTI futures contact.
Long term they remain bullish on crude and expect WTI to return to $70/bbl per barrel in 2018.