Well, that didn't age well.
A few months ago, I thought OPEC was doomed and low gas prices would stick around for a while.
Well that declining chart turned around rather quickly.
So gas prices are back to where they were before the crisis. So what happened?
First, according to oil analysts, there has been “robust compliance” with the OPEC cuts. Many independent Canadian and American oil producers have lowered their output too, probably because of the low prices not being worth it. Oil supply has been lowered by 14 million barrels per day since April. The oil countries are sticking to their agreements and the cuts are substantial.
Second, global oil demand fell by 16 million barrels per day in Q2 of 2020 due to the lockdowns and other measures. China made a surprising comeback in oil consumption, and all those oil tankers floating in the ocean changed their direction to head to Asia.
Third, I underestimated the ability of oil storage companies to find new storage. I heard a podcast the other day that talked about companies that had tanks for other purposes (like water storage), suddenly getting into the business of oil storage. The capacity of storage was able to expand.
Still, the amount of oil being stored continues to rise. Another 81 million barrels of oil added to existing supplies in one month. How long can that go on for?
I think we're not done with the oil story yet.
I need to give OPEC more credit for their plan to reduce supply working. Also, the open market in Canada and US had the same effect, and companies shut down production due to lack of profitability.
I don't see the demand coming back to 2019 levels until next year. But the oil industry seems to be handling it.