Energy

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

OPEC's just had it with you short sellers. So it's going to... meet. Don't say you weren't warned.

Oil had another little bounce on Monday after OPEC's president said oil's bear market was temporary -- NB: that's something you kind of have to say if you head OPEC -- and members would hold an informal meeting next month.

Time For An Intervention
Nymex light, sweet crude oil price
Source: Bloomberg
Note: Generic 1st-month futures price.

The latter, especially, may raise memories of the "freeze," the proposed agreement between OPEC and Russia to cap production that didn't come about but helped tee up the spring rally after the market meltdown at the start of the year. This time, Russia stands aloof and there's only talk of a meeting. Still, OPEC's verbal intervention echoes the start of the year in one interesting way:

It's Time to Talk
Hedge funds' net length in WTI crude oil futures and options is tumbling again
Source: Bloomberg

Speculative net length in WTI crude oil futures and options just fell below the equivalent of 300 million barrels for the first time since March. And the latest move was much more about shorts taking on positions rather than longs simply unwinding.

The summer rally has crumbled as booming gasoline demand has turned out to be less booming than previously thought and oil prices recently fell through a number of technical floors in rapid succession.

While OPEC's president said "the economies of major oil consuming countries are expected to improve which in turn would augment oil demand in the coming quarters," that isn't cut-and-dried. U.S. jobs numbers are good, but GDP data, admittedly more lagged, look less so. Even Sanford C. Bernstein's oil analysts, among the most bullish on a recovery, were warning over the weekend that demand growth may disappoint next year.

Indeed, Monday's statement from OPEC contained this curious phrasing:

The recent decline observed in oil prices and the current market volatility is only temporary. These are more of an outcome resulting from weaker refinery margins, inventory overhang -- particularly of product stocks, timing of Brexit and its impact on the financial futures markets, including that of crude oil.

It's true that the glut of crude oil and, more recently, products such as gasoline is crushing margins, thereby setting up a buyers' strike on the part of refiners. Yet these get to the heart of what ails the market, rather than being some sort of quirk. Brexit, meanwhile, is important chiefly for what its longer-term economic effects might be, rather than its immediate impact on sentiment.

Still, when you're president of an organization as weakened and divided as OPEC is, you have to say something. For my part, I think the comments from the organization's new secretary general in OPEC's latest monthly bulletin are more on-point:

It is quite obvious; almost elementary to all commentators that what we saw prior to the correction in 2014 when oil sold for as high as over $100 [per barrel] — and at a time $140 [per barrel] — was something that was abnormal. There are certain structural changes that have gradually been taking place in the global economy and impacting the energy scene, particularly oil and gas.

These words predated the OPEC president's but form a necessary coda to his nonetheless: Oil prices should recover to some degree, but the world has changed.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net