Inventories may distort oil prices, IEA says

Oil prices may repeat the swings seen in the first quarter as inventories of the benchmark U.S. West Texas Intermediate rise at a time of the year when they are normally depleted, the International Energy Agency said.

Crude stocks at Cushing, Oklahoma, the delivery point for the New York Mercantile Exchange light sweet oil, registered counter-seasonal gains in July as refinery utilization decreased and imports rose, the IEA said. Stockpiles are at their highest levels since March, at 33.3 million barrels a day as of July 31, the agency said in its monthly report.

Oil prices in the first three months of the year fluctuated between US$35 and US$55 a barrel, caused by “periodic bouts of deep contango near expiry as Cushing spare capacity likely eroded,” the IEA said in its report. Contango is a price situation in which oil today is worth less than in the future, encouraging supply storage.

The probability of price swings is exacerbated as storage owners fail to publish official data about how much storage capacity is available, the report said. While Nymex estimates capacity is 50 million barrels, effective capacity may be less than 40 million because of shutdowns for inspections and repairs, the report said.

Financial Post