In trying to keep inventories low through the cycle, OPEC+ risks worsening any global recession, and overtightening the market during the next upturn.
Chartbook: Global petroleum inventoriesSEVERELY DEPLETED INVENTORIESThe extreme backwardation in Brent futures prices is a symptom global petroleum inventories have become uncomfortably low.
BALANCING RISKS AMID UNCERTAINTYWhen spare capacity and inventories are both low, the volatility-reducing course is to put whatever spare capacity there is into production immediately to accumulate inventories pre-emptively.
But the timing, duration and depth of the next downturn remains uncertain as does any reduction in oil consumption, either in absolute terms or relative to trend.
Related columns:- OPEC+ cut draws hedge funds back into the oil market (Reuters, Oct. 10)- Oil investors ready for recession (Reuters, Oct 3)- Recession will be necessary to rebalance the oil market (Reuters, Sept. 22)- Oil prices and financial markets brace for recession (Reuters, Sept. 15)- John Kemp is a Reuters market analyst.