As traders slowly (and then quickly) woke up to the fact that a "freeze" at record levels of production is not a "cut", WTI Crude has collapsed over 5% from its hope-stricken illiquid highs of early trading - now back below $30.
As Barclays warns:
- OPEC OUTPUT FREEZE WOULD LEAVE 1Q SURPLUS OF 1M B/D: BARCLAYSOIL UPSIDE LIMITED EVEN IF OUTPUT FREEZE SUCCESSFUL: BARCLAYS
And the reaction to reality...
And this is taking the shine off the equity market exuberance...
As we said last night, the market can now re-focus on the real underlying dynamics: not only excess supply but clearly slowing global demand...
... and U.S. oil land storage, which as we and the market have been warning, is about to overflow. This perhaps explains why after surging in the aftermath of the headlines from the non-deal hitting the tape, WTI is back under $30. As attention now shifts to nearly full land storage, an oil price in the teens could be next because as BMI Research writes, the risk of a price collapse into the $10-$20/bbl range is mounting as the drop in U.S. crude demand may outpace production declines. Change "may" to "will", and the next big catalyst on the oil horizon becomes apparent.