According to Bart Melek at TD Securities, disruptions in the Strait of Hormuz have led to oil inventories reaching historically low levels, leaving Brent crude oversold and susceptible to a sharp short-covering rebound [1]. TD Securities projects that Brent could move into the $90–110 per barrel range, or even approach $100 per barrel for a period, up from the current price of $74 per barrel [1]. This potential price surge is attributed to tightening supply conditions and the presence of outsized short positions among investors [1].
The report highlights that Cushing inventories are slightly below 19 million barrels, and global inventories are also at low levels, further supporting the possibility of a short-covering rally in crude prices [1]. Such an upside move in oil prices would likely lead market participants to anticipate a more restrictive Federal Reserve policy stance, which could increase the carry and opportunity costs for gold holders and put additional pressure on gold prices [1].
TD Securities also notes that while tankers are likely to continue passing through the Strait of Hormuz, the ongoing erosion of inventories to unsustainably low levels could persist well into October, maintaining upward pressure on crude prices [1]. Additionally, China has played a significant role in preventing a sharper oil price surge by reducing imports by 40% and drawing down strategic reserves, but the bank believes China may not be able to sustain this strategy through October without increasing its vulnerability to new hostilities [1].
CONCLUSION
TD Securities warns that Brent crude is oversold and vulnerable to a sharp rebound due to historically low inventories and persistent supply risks. If realized, higher oil prices could reinforce restrictive monetary policy expectations and impact related markets such as gold.