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1/6 Coming into pandemic, analysts forecasted 20-30M bpd builds in inventories as demand collapsed. Real-time data shows builds significantly less (7-8M bpd). Falling prices (negative prices!) reinforced perception of tank tops, leading to drastic/sudden cuts despite "ok" builds.
2/6 Bearish forecast now results in supplies being over tightened. As we reopen from lockdown, opposite issue of entering it (demand recovers faster than supply). Here it'll be worse as overly pessimistic forecasts = larger cuts than needed = inventories draw faster.
3/6 Prices will remain weak as inventory overhang and slower recovering demand (no "V", maybe "U") keeps a lid on the oil curve, so despite inventory draws, market will say "meh"...we still have inventories to burn through, and supplies can easily be brought back amiright?
4/6 Some shut-ins will return, but watch decline rates. Capex reduction, closed capital markets, and inability to hedge at attractive prices = short-tail production (i.e., the very thing that kept declines rates at bay) falls and falls quickly. That'll be the 2020 story. 2021?
5/6 2021 was always the year of reckoning as underinvestment in long-tail projects = global decline rates increase = S/D imbalance. Now short-tail projects just wrecked, and wrecked hard, so try finding capital to meet both, and do it quick.
