“If refiners are forced to cut runs for December, then it would be hard for OPEC to cut its own production quickly enough to compensate. In that case, a $20 – $30/bbl range for crude, albeit temporarily, would not be impossible.”
Since then, refiners have indeed been cutting runs very hard. Equally, OPEC’s secretary-general has confirmed that the cartel’s November cuts have only achieved c60% compliance. As a result, the January WTI contract hit $33.87/bbl last week.
The expected temporary nature of the fall has led to massive forward purchases, causing June prices to be $10/bbl higher than today’s. In turn, this offers guaranteed profits for those able to find storage. 50 million barrels have so far been added to stocks as a result. And official OECD stocks have risen by 5 days, to 57 days.
This supply overhang will make it hard for prices to rally quickly from today’s depressed levels. Yet an eventual supply crunch is growing ever more likely. Today’s prices are a long way from the $75/bbl that is needed to make most proposed new investment viable.