Get Set For A Grim September With Oil As Low As The $30s, Warn Analysts

Anthony Grisanti, founder and president of GRZ Energy

Anthony Grisanti, founder and president of GRZ Energy, has offered a simple formula to support his prediction that oil will trade in the mid $30s before the year is out: "There is more oil being produced today around the world than last year at this time, and economies are doing pretty much the same; it's the perfect recipe," he writes in a CNBC editorial.

Going contrary to the opinion of some traders, Grisanti dismissed the current drawdown as a result of not a demand uptick but of the storm Hermine that halted as much as 25 percent of gulf oil production and caused shiploads of overseas oil to wait out the storm before delivering their cargo.

Grisanti believes that this weeks numbers "will show a substantial build in supplies; in fact, crude oil supplies have built consistently over the last few months and will continue to do so at least until the end of this one."

If he's right, and crude does fall to the mid $30's, Ship & Bunker data indicates IFO380 would fall back under $200/mt in the primary ports.

Tom Kloza, global head of energy analysis for Oil Price Information Service, agrees with Grisanti, calling this week's inevitable return of crude production and imports one of three disappointments that traders are setting themselves up for.

Speaking to CNBC, Kloza cited the Organization of the Petroleum Exporting Countries (OPEC) freeze talks in Algeria as the second disappointment: "There's not going to be any change in OPEC production or Russian production."

The third disappointment "comes when refiners start ratcheting back here in late September/October and they need less crude"; based on these factors, Kloza said "it would be tough for me to make a case for crude going more than a few dollars higher than it is now ... we're in the $40s for a long time here."

The like-minded Grisanti points out that a freeze would be meaningless anyway, because it "would put OPEC production at about 2 million barrels above its quota; the U.S. is still producing over 8 million barrels per day, Libya and Iraq are producing more, and the list goes on."

Grisanti ends his grim editorial by skewering another sacred cow of the analytical world, that a drop in capital expenditures will hurt production: "if that is true, it's not showing in the numbers, as most countries are able to produce even more.

"We are still a long way from demand overtaking supplies."

Grisanti and Kloza are hardly alone in their assessment of near-future market performance: John Kilduff, founding partner at Again Capital, has warned for the past year of oil's likely drop back into the $30s, and last week he took a swipe at overly-optimistic traders, suggesting they are being played for suckers by empty promises of stabilization from OPEC.