TD Securities, through analyst Ryan McKay, asserts that the crude oil market remains structurally tight, with both global and Chinese supply-demand balances indicating ongoing deficits rather than oversupply [1]. Despite a recent increase in flows through the Strait of Hormuz—attributed to stranded tankers exiting following the signing of a Memorandum of Understanding—McKay argues that this temporary flush of supply is being misinterpreted as a supply glut. He emphasizes that as the market shifts from relying on floating storage to production increases, supply is expected to tighten again [1].
McKay highlights that all pre-war slack in the oil system has been eliminated, and every available lever of flexibility has already been utilized to avoid market catastrophe. This has led to a market sentiment characterized by relief and optimism, but also an overemphasis on short-term supply increases and the early stages of supply recovery. Despite these factors, McKay expects oil prices to remain above pre-war levels due to the fundamental damage sustained by the market [1].
TD Securities projects ongoing market deficits of approximately 2.5-3 million barrels per day (b/d) in crude oil and at least 1-2 million b/d in refined products through July and August, with the market expected to reach a more balanced state in September [1]. These deficits are anticipated to persist even with higher flows, as a slowdown in Strategic Petroleum Reserve (SPR) releases and reduced U.S. exports—driven by domestic inventory tightness—offset some of the increased supply [1].
Looking forward, McKay forecasts a recovery in oil prices toward $90 per barrel, with the potential for an extension toward $100 per barrel if structural tightness continues [1]. He concludes that the oil market will require structurally higher prices due to its stretched state relative to recent history [1].
CONCLUSION
TD Securities expects persistent market deficits and inventory drawdowns to support a recovery in oil prices toward $90-$100 per barrel in the coming months. The analysis suggests that, despite temporary increases in supply, structural tightness will keep prices elevated above pre-war levels. Market participants should anticipate continued volatility and higher price floors as the market rebalances.