Oil Bulls Finish September with Worst Month and Quarter in 2 Years

Oil bulls finished September with their worst month and quarter in two years, Barani Krishnan, a senior commodities analyst at uk.Investing.com highlighted in a statement sent to Rigzone recently.

Krishnan, who outlined that the development might be a shock to longs in the trade, said short-sellers have expected such a correction for months, “given the energy rally’s tendency to often overshoot fundamentals”.

“A loss of around 10 percent on the month and nearly 25 percent for the quarter is indeed surprising for oil bulls, but crude at $130-$140 a barrel is as unsustainable as crude at $20-$30,” Krishnan said.

“As producers and consumers try to find a middle ground, it appears that $70-$80, which is not far from current levels, might work. OPEC+, having experienced north of $100 for about six months, could announce production cuts from … [this] week, aimed at reprising those highs,” Krishnan added.

“Russia wants OPEC+ to reduce output by around one million barrels per day when the alliance meets on Oct 5, a source familiar with the Russian viewpoint told Reuters on Tuesday,” Krishnan continued.

The commodities analyst noted that there are three issues with this though. 

“One: If there’s going to be a production cut, we can almost bet that Russia wouldn’t be contributing to it, even if there’s a quota assigned to it on paper,” he said.

“Two: The Russians might propose a cut, but they will keep selling crude at a discount in the open market and that will undercut the rest of the exporters in OPEC+,” Krishnan added.

“Three: No one really believes OPEC+’s production quotas anymore. The group barely met its output target for months and could once again ignore what’s on paper,” he continued.

According to Krishnan, if OPEC+ announces a substantial production cut this week and carries it through, any price gain in futures will over time be diluted by Russia’s discounting on the physical market. 

“Anyone in OPEC+ who cuts will also likely lose their market share to Russia,” Krishnan said. 

To contact the author, email andreas.exarheas@rigzone.com