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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& #39;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& #39;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.
