[ForexNews]

WTI crude oil has sustained its position over USD 70 per barrel (pb) so far this week. This has predominantly been driven by USD weakness and strengthening sentiment towards a recovery in demand in H2. Analysts remain bullish on crude for Q4, when expect strengthening demand to materialise and begin to erode stock levels. However, nearer term, high distillate stocks and slippage in OPEC’s compliance will provide significant headwinds. Particularly high crude stocks at Cushing, the delivery point for the NYMEX WTI contract, are once again driving an excessive discount to the ICE Brent contract. With refineries cutting runs on poor margins, it will take weeks for the situation to be resolved.

Meanwhile, China’s apparent demand is growing y/y and demand from Latin America and the Middle East also expanded in Q2, according to International Energy Agency (IEA) estimates. However, demand from the remaining 70% of the global oil market continued to fall in Q2 and there is little indication that Q3 is any different so far. US inventory data this week continued to show a picture of weak (albeit falling at a slower pace) demand and high inventories. Meanwhile, indications are that OPEC’s output is edging higher and this is likely to persist for as long as prices remain within what believed to be OPEC’s desired target range of USD 70-75pb. Any move to USD 80pb would likely add to slippage.