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Page added on May 22, 2016
Why Brimming Oil Inventories Aren’t Crashing Prices
Inventories of crude oil and refined products have soared, but seem to be having little impact on prices.
Measured in terms of the number of days of demand that could be met by the stored oil, OECD commercial inventories have risen from 57 days at the end of 2013 to 67 days at the end of March this year. They exceed by 5 days the volume of oil in storage at the depth of the financial crisis, after global oil demand had collapsed.
Surging oil inventories are normally associated with falling oil prices, because they’re seen as a signal that there’s too much oil about. Until early this year, this time was no different. The 76 percent drop in crude oil prices that accompanied the rise in inventories is well known.
But the recent surge in prices, which have jumped by more than 75 percent from their mid-January low, has not been accompanied by a drop in the volume of oil in storage. Quite the opposite.
The relationship between stockpiles and prices has broken down because higher inventories are now needed to meet surges in demand or disruptions to supply. That’s very different to what the global market had got used to over the past two decades, when these changes were met by a pickup in production, made possible by OPEC’s spare production capacity.
Companies hold inventories for a variety of reasons, which can be broadly defined as logistical, speculative and security. Oil is needed to fill pipelines, refineries and the supply chain; that’s the logistical inventory. Varying volumes may be held to profit from expected future movements in prices; the speculative inventory. Oil is also held to provide a cushion against both anticipated and unexpected fluctuations in supply and demand, this is the security inventory. All of these factors have contributed to the growth in the oil stockpile since the end of 2013.
OPEC spent much of the 1990s and the 2000s trying to convince the global oil industry that it did not need to hold large, expensive stores of oil. Instead, we could all rely on OPEC producers to anticipate market needs and alter supply as required, making use of their spare production capacity.
As Gadfly argued recently, that spare capacity has largely disappeared since Saudi Arabia abandoned its role as swing producer in November 2014 and raised production. With almost everybody else producing as much oil as they can, room to boost production is now all but non-existent outside the kingdom. Much of the reported spare capacity is the result of disruptions to supply that can’t be restored without improvement in some underlying political problem — whether the unrest in the Niger River delta, or the chaos engulfing Libya.
The situation has worsened since the start of the month. A series of unforeseen supply outages, most notably from Canada and Nigeria, has removed at least 2 million barrels a day of supply from the market. But oil prices haven’t moved much, because the growing stores create a sense that there’s plenty of crude available.
But in the absence of spare production capacity, companies will have to keep inventories that they can dip into to meet fluctuations in demand instead of relying on OPEC to ramp up production like it normally would.
The normal relationship between inventories and prices may yet reassert itself.
But for now, so long as higher stockpiles are needed in place of spare production capacity to meet spikes in demand, or disruptions to supply, high levels of inventory need not mean downward pressure on prices.
12 Comments on "Why Brimming Oil Inventories Aren’t Crashing Prices"
makati1 on Sun, 22nd May 2016 7:25 am
Bloomberg / EIA and who is to believe anything they say?
With maybe hundreds of oil tankers sitting full at anchor, there will be no “shortage” in the near future to move prices. Only rumors and lies in the news.
denial on Sun, 22nd May 2016 8:53 am
Mak is this what you do in the morning go through each story and say the same thing? What I want to know is what is going on in the Philippines? That country looks like it is at the beginning of a very fast implosion. Not trying to pick on you—-Just saying you seem to be yelling from a piece of floating debris in surrounded by lava….
Does anyone have numbers on per capita usage of oil per country? Every time I visit the states it looks like the vehicles are getting bigger and bigger. I see an increase of oil demand by 30 percent by 2030? Is that right? I don’t know where that will come from. Unless the world started building Nuclear power plants at China speed….that will probably be the end game….oh no we need more energy lets green light a bunch of nuclear power plants….too late!!! Collapse!!!
shortonoil on Sun, 22nd May 2016 9:11 am
“But for now, so long as higher stockpiles are needed in place of spare production capacity to meet spikes in demand, or disruptions to supply, high levels of inventory need not mean downward pressure on prices.”
Prices fell $70/barrel on inventory concerns; they have recently risen by $16 on supply disruptions, and possibly market manipulation by the the big banks. Bloomberg’s comment, “high levels of inventory need not mean downward pressure on prices” has absolutely no bases on what has been witnessed over the last two years. It is an absurdity, and just one more example of how the MSM is more agenda driven than fact driven.
Inventories are still on the rise, and the 75 tankers parked in the Strait of Malacca with no place to off load their cargoes is just one more present day example of this trend. Inventories will continue to increase over the next few years, and prices will continue downward. The oil age is in its final stages. How long it will take Bloomberg to face the reality of the situation is likely to be more dependent on the strength of their agenda than the strength of the price of oil. It is a disservice that can only add to the catastrophic events that are likely to soon be taking place.
http://www.thehillsgroup.org/
makati1 on Sun, 22nd May 2016 9:23 am
denial, it is not. You only get the propaganda from the US MSM I guess. I have seen no negative changes in the 8 years I have been here. The country’s economy has been growing at 6% or more every year for the last 10+ years.
Is there poverty here? Of course. Do bears shit in the woods. LOL Look close and you will see it in the US too. Take away the Food Stamps and it will be blatant.
Is there crime here? Again, yes, but I feel safer here than I did in the Philly burbs. The US is becoming a police state.
Drugs? Some, but not near like in the Us. Most of the people here are too poor to afford recreational drugs beyond alcohol and cigarettes.
Education? Getting better all the time and they are not expensive. A 4 year degree costs about $5,000.00 TOTAL for four years, including books and fees. My partner got his architectural degree for even less and he is a registered architect working in Dubai at the moment.
The Ps are like America was about 50 years ago. They are just recovering from 400 years of Spanish rule and 50 years of American rule, where plundering the Ps resources kept the Philippine people down.
As for lava and all that bullshit, it is just as safe here as in any US West Coast state.
USA (mainland exept Alaska) (71 volcanoes):
– Washington: Mount Baker | Glacier Peak | Mount Rainier | Goat Rocks | Signal Peak | Mount Adams | Mount St. Helens | Simcoe | Indian Heaven | West Crater
– Oregon: Mount Hood | Jefferson | Blue Lake Crater | Sand Mountain | Mount Washington | Belknap | North Sister | South Sister | Broken Top | Bachelor | Newberry | Devis Lake | Devils Garden | Squaw Ridge | Four Craters | Cinnamon Butte | Jordan Craters | Diamond Craters | Crater Lake
– Wyoming : Yellowstone
– Idaho: Shoshone | Craters of the Moon | Wapi Lava Field | Hell’s Half Acre
– Colorado: Dotsero
– Nevada: Steamboat Springs | Soda Lakes | Timber Mountain | Lunar Crater
– California: Medicine Lake | Mount Shasta | Brushy Butte | Twin Buttes | Silver Lake | Tumble Buttes | Eagle Lake | Lassen | Clear Lake | Mono Lake | Mono Craters | Long Valley | Inyo Craters | Mammoth Mountain | Ubehebe Craters | Golden Trout Creek | Coso | Lavic Lake | Amboy | Salton Buttes
– Utah: Santa Clara | Kolob | Markagunt Plateau | Black Rock Desert | Bald Knoll
– Arizona: Uinkaret | San Francisco Volcanic Field | Sunset Crater
– New Mexico: Zuni-Bandera | Valles Caldera | Carrizozo | Raton-Clayton
http://www.volcanodiscovery.com/north-america.html
BTW: the Ps only has 52. ^_^ Did you know that Antarctica has 25?
AS far as annual oil consumption by country: (2014)
US = 61 bbls / 1,000 people
Ps = 3 bbls / 1,000 people
http://www.indexmundi.com/map/?v=91000
Who is going to miss oil the most? LOL
I hope I helped.
denial on Sun, 22nd May 2016 9:51 am
Mak…..Really? I guess I must be fed lies then…..here are some from a quick search…..http://eyeforaneye.vice.com/editorial/the-punisher
From this article the Philippines look like a whore to U.S corporations…
I hope you know your Koran when the Jihadist take over….
Davy on Sun, 22nd May 2016 9:57 am
The usual refrain of anything that does not fit is “you only get the usual US MSM”. No makati bill most people if they are here are past that so your constant refrain for anything that doesn’t fit you private mainstream media version is no different from global corrupted mainstream media.
Denial has a valid question and critisism. Anyone who brags and constantly talks themselves up and talks up any country is selling snake oil. No I am not talking up the USA. It is constantly said I am a flag waiver but that is because I am not extreme in US critisism. Extremism does not work with moderation. I am only moderating extremist views of the US because I live here and it is my life that is being criticized in an extreme way.
The US is the worst country on a number of metrics but most countries are right bellow the US and as this world becomes multipolar and diluted by globalism the same poor shape. The P’s are a mess. They are in climate changes cross hairs and overpopulated and so is the US and ever other friggen country out there.
GregT on Sun, 22nd May 2016 10:39 am
“Bloomberg’s comment, “high levels of inventory need not mean downward pressure on prices” has absolutely no bases on what has been witnessed over the last two years. It is an absurdity, and just one more example of how the MSM is more agenda driven than fact driven.”
Absolutely. Bloomberg is the poster child for US MSM manipulation and propaganda.
makati1 on Sun, 22nd May 2016 10:39 am
denial, do you know that there are many more Chinese owned corporations here than US? I guess not. The only US bank is Citi. There are many Asian banks.
As for the religious slur, The Ps is about 87% Catholic, 11% Muslim, 2% other. Muslims have been here since the 14th century and are still only 11% of the population. I guess they are not having much success in getting new members other than by birth. What is happening in Mindanao is the result of US meddling, nothing more. The drug gangs in the US are more dangerous.
BTW: Your site seems to be owned by – 2016 Bethesda Softworks LLC, a ZeniMax Media company. Rockville, Maryland, United States. (Washington burb)
“Interactive entertainment
Computer and video games”
They should add “major suppliers of bullshit to the American Sheeple” to their line of wares. LOL
penury on Sun, 22nd May 2016 11:32 am
Look at the economics of the situation. Major banks are on the hook for several trillions of dollars for the inventory of oil. The banks are on the hook for billions in the drilling and recovery of the oil. The governments are controlled by the banks. Failure of the oil industry would destroy the international banking system. Now really who is more important? 100 bankers or 7 billion other humans? When you figure that out you may understand why the oil industry cannot fail.
denial on Sun, 22nd May 2016 12:32 pm
Good point Pen; banisters and oil companies are all intertwined system. I think that is why the FED has a grandmother type figurehead…..so people don’t realize that they are actually getting screwed by this little ole lady….
rockman on Sun, 22nd May 2016 12:58 pm
Just a reminder: since the oil price crash most of the oil going I to storage was BOUGHT by speculators working the contango angle. IOW that was oil REMOVED from the market place and to some degree put UPWARD pressure on the price. IOW were it not for speculation the only buyersd would have been the refineries. And they don’t pay more for oil they they project their profit margin. The speculators are betting on higher future prices then the refineries anticipate.
dave thompson on Mon, 23rd May 2016 8:24 am
I keep hearing of oil tankers sitting in the ocean filled with crude and unable to offload. At some point there would be no oil tankers left to refill? How can the oil producers keep pumping? Clearly there cannot be an endless supply of tankers to fill and park someplace in the ocean.