Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on November 20, 2015
Should We Worry As Oil Stocks Hit 3 billion barrels?
Nearly 3 billion barrels of crude petroleum and refined products are being stored by oil firms in the advanced economies according to the International Energy Agency (IEA).
Commentators have seized on the 3 billion figure as a shorthand way to convey how oversupplied the oil market has become.
Large round numbers exert a powerful pull on the imagination but shorn of context they are meaningless and apt to confuse rather than illuminate.
The statistic is technically accurate but the way in which it is being employed by analysts and journalists is hugely misleading.
It would be more helpful to report the change, which is 240 million barrels, or 9 percent, over the last year.
Global Oil Inventories
The 3 billion barrels figure being widely quoted is actually for a relatively small subset of the total crude and products being stored.
Global stocks of crude oil and refined products are probably at least double this figure, at more than 6 billion barrels.
Oil producers, traders, pipeline operators and refiners held crude and products stocks in the OECD countries amounting to 2.989 billion barrels in September, according to the IEA (“Oil Market Report” Nov 2015).
But the figure excludes government-controlled stocks in the OECD, private and government stocks in emerging markets, oil in transit by tanker, as well as all stocks held by wholesalers and end-users.
OECD governments controlled a further 1.581 billion barrels of oil and refined products stocks as emergency reserves, taking total stocks on land in OECD countries to almost 4.6 billion barrels, according to the IEA.
Developing countries tend to hold smaller stocks in private and government-controlled storage but they account for half of global oil demand and could easily be holding another 1 billion barrels of stocks.
China, for example, is thought to hold more than 200 million barrels in its government-controlled Strategic Petroleum Reserve (“Oil Market Report” Sep 2015).
If refiners in emerging markets hold the same operational stocks on site as their counterparts in the advanced economies, there are likely to be at least another 500 million barrels in private storage in developing countries.
All the figures given so far exclude stocks in transit by tanker from oil exporting countries to the major refining centres.
There are roughly 650 very large crude carriers (VLCCs) plying the seas with a total carrying capacity of around 1.3 billion barrels of crude oil.
If roughly half are filled with crude, while the other half are in ballast on the return journey, that would imply another 650 million barrels of crude in transit.
Hundreds of millions more barrels of crude are in transit in smaller Suezmax and Aframax vessels plus millions of barrels of refined fuels in transit by tanker.
It is relatively easy to produce an estimate that puts global crude and products stocks somewhere in the region of 6-8 billion barrels.
Operational Requirements
The impression is sometimes given that stocks are sitting idle waiting for an upturn in demand before being consumed, but holding large volumes of stock at all points in the supply chain is an operational necessity.
The entire supply chain was illustrated in a study by the U.S. National Petroleum Council “U.S. Petroleum Product Supply: Inventory Dynamics” in 1998 (http://tmsnrt.rs/1kKx9ic and http://tmsnrt.rs/1kKx9yB).
Looking at just the commercial and crude stocks reported by the IEA, oil refineries typically want to hold crude oil on site in their tank farms equivalent to around 6-10 days worth of processing.
Tank farm storage gives the oil time to settle, permits optimal blending, and enables the distillation units to be fed continuously, while protecting against any delays in fresh crude arriving.
Global refineries process more than 80 million barrels of crude every day which implies they need around 500-800 million barrels in storage for immediate operational needs.
In addition, well over a billion barrels of oil and refined products are moving from oil fields to refineries and then to bulk distribution terminals every day via tankers, pipelines, barges and railroad tank cars.
In the United States alone, there were almost 100 million barrels of crude oil in transit by pipeline, railroad tank car and barge in March 2015, all of which are counted in commercial crude stocks by the U.S. Energy Information Administration (EIA).
Then there are hundreds of millions of barrels stored in tanks at oil fields and ports around the world awaiting for export by tanker.
In the United States, there were 35 million barrels of crude still in storage at the oilfields in March, which are again included in the EIA reported commercial stocks figures (“Working and net available shell storage capacity” May 2015).
Refineries also hold hundreds of millions of barrels of partially refined oil as part of their operations, and there are hundreds of millions of barrels of refined fuels ready for shipping to customers.
Every figure so far has been for “primary stocks”, but additional stocks of refined fuel are held by wholesalers and distributors (“secondary stocks”) as well as end users (“tertiary stocks”).
The enormous inventory held at every stage in the supply chain from oilfield, export terminal, pipeline and tanker to tank farm, refinery and bulk fuel terminal explains why refined fuels are nearly always available.
Prices are volatile but there are almost never actual physical shortages of crude or fuels like gasoline and diesel because inventories create operational flexibility and resilience in the supply chain.
Oil storage is becoming very big business. According to the IEA: “An impressive 230 million barrels of new land-based storage capacity could be commissioned before end-2016 in locations as diverse as North America, the Middle East, Africa and South East Asia, with Chinese SPR capacity expected to account for more than half.”
Proper Context
The volume of crude and products in commercial storage on land in the OECD is important because it is one of the most flexible parts of the storage system.
It is also one of the most visible parts of the supply chain where changes in stock levels are most likely to be reported.
OECD commercial storage is where any imbalance between supply and demand in the global oil market is most likely to show up.
But the problem with quoting the 3 billion figure is that that without proper context it gives the impression the world is drowning in surplus oil, which is grossly misleading.
The stock of crude and refined products in commercial storage in September 2015 was 241 million barrels higher than in 2014, 274 million higher than 2013 and 239 million higher than 2012.
OECD crude and products stocks are 340 million barrels, 13 percent, higher than in July 2008, when many commentators were worried about oil shortages and crude prices were peaking at more than $140 per barrel.
Current OECD stocks cover 98 days of consumption, up from 93 days at the same point in 2014, and 86 days in June 2008.
Oil prices are set at the margin, so the 240 million barrel increase in commercial stocks over the last 12 months has significantly depressed prices.
But it is much more useful to focus on the rate of change rather than the absolute level of stocks.
The 3 billion figure should be banished from serious analysis, or at least put into a proper context.
18 Comments on "Should We Worry As Oil Stocks Hit 3 billion barrels?"
Kenz300 on Fri, 20th Nov 2015 7:14 pm
Frackers going broke…… banks stopped lending……
Tar sands in Canada…… dead money……..
XL pipeline…… no need for a pipeline………
Boom….bust……..
rockman on Fri, 20th Nov 2015 8:29 pm
And as the Rockman put into context a few days ago just looking at US oil dynamics: During the first week of November storage increased by 730,000 bbls. In absolute terms that would seem huge. But compare it to the amount of US oil production and imports for that week: the 730,000 bbls reresents just 0.5% of the total. IOW 99.5% of that oil was bought and injected into the system. As pointed this does not scream “glut” IMHO. And the situation is probably more onsided then those numbers imply: some of those 730,000 bbls were bought by speculators who sent them to storage. IOW not all of it belongs to producers and some should actually be counted as oil SOLD into the system.
The preaching remains unchanged: there is no glut of $45/bbl oil…the world is currently consuming more oil then ever before. But there is huge glut of $90/bbl oil…there’s not one bbl being bought. And yes: there is a huge shortage of $20/bbl oil: not one bbl is available from any producer. Even Iraq has none…their’s going for $30/bbl.
MrNoItAll on Sat, 21st Nov 2015 3:07 am
If you’re the power elite and you’re preparing for inevitable economic collapse and major reset of human civilization, then you’d want to store up as much oil, steel and other raw materials (i.e., commodities) as possible. What is being portrayed as a glut and as a huge oversupply of commodities may really be nothing more than part of “the plan”. I guess we’ll have to wait and find out if that’s the case or not.
Cloud9 on Sat, 21st Nov 2015 6:14 am
The technology bubble, the housing bubble, the fracking bubble, the bank bubble, the last bubble to pop will be government bubble. Then we will reset. I never expected to be awash in oil as the system unwound.
marmico on Sat, 21st Nov 2015 6:32 am
The preaching remains unchanged
What a bloviating, blathering blowhard. You still can’t figure out how the quantity supplied can increase and the equilibrium price can decline.
http://cdn.yourarticlelibrary.com/wp-content/uploads/2013/09/clip_image012_thumb19.jpg
The raw barrels in storage is a red herring. The petroleum system from well to gasoline station requires a minimum level of storage. It is the “excess” storage that matters. The general consensus is about 500 million barrels of global* excess (glut) oil and product or 7 days of excess storage relative to quantity demanded.
I’m still waiting for the 250 word POD abstract.
* The U.S. is ~175 million barrels of excess (glut) with no signs of decline.
rockman on Sat, 21st Nov 2015 6:48 am
Mr – The “power elite” don’t need to store a single bbl of oil. If supplies become that short they’ll simply be able to buy what they need. Unless, of course, you’re talking about the poor and the powerful. LOL.
Davy on Sat, 21st Nov 2015 7:42 am
Rock said “The “power elite” don’t need to store a single bbl of oil. If supplies become that short they’ll simply be able to buy what they need. Unless, of course, you’re talking about the poor and the powerful. LOL. “
Yea Rock, until there is none available to buy. At some point TPTB will have to run things because free or pseudo free markets have limits.
shortonoil on Sat, 21st Nov 2015 9:36 am
2012 was the energy half way point; the point where it required as much energy to produce petroleum, and its products as it delivered to the general economy. It was also the point were the general economy could never again acquire all the petroleum produced. That indicates that prices will long term continue to fall, and inventories will increase until production is shut-in to compensate. The petroleum industry is now in its shut down phase.
This will directly affect the monetary/ financial system that allows for the present Petroleum Production System to function. As prices fall oil exporting nations will find their currencies coming under increasing stress. This will continue until they fail, and their sovereign wealth funds, that the Western banks have invested heavily into, along with them.
The ending of the oil age, and the pursuant crisis that will follow is likely to be best ascertained from the on going activities of the FX markets.
http://www.thehillsgroup.org/
rockman on Sat, 21st Nov 2015 12:10 pm
Davy “At some point TPTB will have to run things because free or pseudo free markets have limits.” You mean unlike today when the rich/powerful aren’t running the show? LOL.
Davy on Sat, 21st Nov 2015 2:09 pm
Rock, what I mean is at some point people like you are going to say “Fock that I ain’t workin for notin” and the product will stop. At that point a 23 year old sergeant with the Texas National Guard is going to call you up for duty to produce product and you will be happy to serve your country.
rockman on Sat, 21st Nov 2015 4:08 pm
Davy – Not a problem there: most geologist work for next to nuthin most of their career…if they are lucky enough to have a job. During the 80’s bust I delivered produce in my own truck, drove a Yellow Cab and tried to sell new cars. I would have been happier working for min wage…really
makati1 on Sun, 22nd Nov 2015 4:56 am
Rockman, I doubt that you will have to worry about being called up to pump oil. I don’t see the US or state governments lasting much past the world wide economic collapse. And there will not be an ability to pump as there will be no suppliers of replacement parts or means to transport it anywhere even if there is oil.
The government still has to feed, clothe and house any conscripts or they die and where will the resources to do that come from? Oh! Maybe they will ‘nationalize’ the farms and conscript the farmers to produce … or else. Now wouldn’t that be a kick in the pants for some… LOL
We all have our pet versions of the future, and probably none are as bad as reality will be.
Davy on Sun, 22nd Nov 2015 9:08 am
Martial law may or may not work but it will be the first step taken after collapse. That is clear in my mind. The success or failure of martial law will be defined by the nature of the degree and duration of the collapse in question. Agendist like Makster can’t contemplate that because his agenda will’s destruction of the US. Makster’s agenda cannot take into account a process that is a variable of the convergence of multiple events. That is the problem with agendas they ae fixed by a narrow message.
makati1 on Sun, 22nd Nov 2015 8:14 pm
Davy, the US is already in the shitter and is not going to climb back out. The East is about to pull the lever. I can see the coming events by following the current events. The US is already a 3rd world police state. It is fast adopting marshal law. The sheeple have no freedom. It is an illusion as you will find out if you try to do anything without the proper permit or travel without the proper papers.
Walk into your local bank and try to take $10,000 out of your account, in cash, and see how much freedom you have. Don’t pay your taxes for a few years, and see what happens. 600,000+ laws on the US books and more everyday. That is freedom?
The US is self-destructing in multiple ways. I am only the observer. I see Bangladesh more and more in America. No, I take that back. It would be putting down the hardworking Bangladeshis to compare them to the obese, lazy, ignorant Americans. LOL
Boat on Sun, 22nd Nov 2015 10:05 pm
mak?
What papers? You don’t need papers to travel. LOL Your nuts. Going to Mexico a few years ago they just waved us through going and leaving. You must have never lived in a big city. Marshal law? You want to see riots in the streets with people banishing their guns? Try shutting down an a couple interstates.
These kind of comments make me question if you ever did live in the states. That’s like a GregT comment on America. No clue.
GregT on Sun, 22nd Nov 2015 11:29 pm
Are you by any chance drunk tonight Boat? You’re making even less sense than usual.
Davy on Mon, 23rd Nov 2015 3:03 am
Makster, I love when you copy and paste your blather. How many times have a read the same thing over the years. The east was the first turd with the US following. The US is a turd just about to drop but Asia is floating already. China is Asia and China is the definition of doodoo.
http://www.bloomberg.com/news/articles/2015-11-22/masters-of-universe-scared-of-china-risks-see-yuan-devaluation
Asia is already going down the pipes and the US will follow along with the rest of the world. The US is a first world and third world place. It always has been Mak what is new with that. Mak, I took $10,000 out of the bank the other day and had “ZERO” PROBLEMS. So shut your suck Mak. We can talk shit on the US because it is in shit and going down the shitter but keep it legit and real.
Makster, you are a silly old man sitting in a little perch in a Manila high rise with nothing better to do than degrade and discredit the US in every way possible. If you were real per your stupid avatar you would be on the faux farm you dream about but are never on. Get a life Makster. Get out of your 20Mil hell hole and get your hands dirty on the farm instead of being a lazy retired city fock.
makati1 on Mon, 23rd Nov 2015 8:36 pm
Boat, try going to Canada or Mexico today without a passport or it’s equivalent papers. You are NOT up to date on the NEW police state regulations.
“You must present a valid U.S. passport or passport card in order to enter Mexico….All U.S. citizens traveling outside of the United States by land or sea (except closed-loop cruises) are required to present a Western Hemisphere Travel Initiative (WHTI) compliant document, such as a passport or a passport card, to return to the United States.”
http://travel.state.gov/content/passports/en/country/mexico.html
“Entry into Canada: Canadian law requires that all persons entering Canada carry both proof of citizenship and proof of identity. A valid U.S. passport, passport card, or NEXUS card satisfies these requirements for U.S. citizens….For entry into the United States via land and sea borders, U.S. citizens must present either a U.S. passport, passport card, NEXUS card, Enhanced Drivers License, or other Western Hemisphere Travel Initiative (WHTI)-compliant document. The only exception to this requirement is for U.S. citizens under the age of 16 (or under 19, if traveling with a school, religious, or other youth group) who need only present a birth certificate, Consular Report of Birth Abroad, or naturalization certificate.”
http://travel.state.gov/content/passports/en/country/canada.html
As I said, you need your papers…