Recovering economies and increased fuel demand have helped the enormous oil glut from this time last year to shrink to levels that could be further reduced with global oil demand expected to jump later this year.
Commercial oil stocks in developed economies, where inventories are transparently reported, have plunged since the record-high surplus built during the second quarter of last year when demand crashed with nearly the whole world on lockdown shortly after the start of the pandemic.
Oil in floating storage has also shrunk as demand rises and oil futures prices discourage storing crude in tankers at sea.
Rising demand in major economies, most of all the two largest - the United States and China - is shrinking the surplus. The glut could be worked down to ‘normal’ levels as soon as this or next quarter when global oil demand is expected to pick up strength with increased consumer traveling and spending and higher industry demand thanks to stimulus packages in key economies.
The latest data from international forecasters as of February show the glut is continuously falling, while according to some estimates, the surplus of crude and product stocks in the OECD countries is nearly gone.
Oil stocks in the OECD fell for the seventh month in a row in February, data from the International Energy Agency (IEA) showed last week. Industry inventories declined by 55.8 million barrels, or by 2 million barrels per day (bpd), during February, led by a sharp draw of 66.8 million barrels in product inventories, the IEA said in its closely-watched Oil Market Report for April. Related: Iran Says It Welcomes Talks With Saudi Arabia
At the end of February, total OECD oil stocks stood at 2.977 billion barrels, reducing the surplus versus the 2016-2020 average to 28.3 million barrels.
To compare, last year in April, industry stocks in OECD jumped by 148.7 million barrels, or by a massive 4.9 million bpd, to 3.137 billion barrels, putting the inventory surplus at 208.3 million barrels above the then five-year average, as per the IEA data.
In the United States, crude oil plus oil product stocks were at 1.28 billion barrels in the week to April 9, according to the Energy Information Administration’s (EIA) latest weekly inventory report. Those total stocks were down by 4.3 percent compared to the same week last year. In the past week, crude oil stocks in the East Coast hit a record low of 8.1 million barrels, which was down by 34.6 percent compared to the same week of the pre-pandemic 2019.
Gasoline demand is rising in the United States, and refineries are also increasing utilization rates and production, EIA’s weekly report showed.
Road fuel demand is expected to drive global oil demand this year not only in the United States but also in Europe, Rystad Energy says in its latest monthly COVID report.
Rebounding oil demand and the crude oil futures market structure point to global demand beginning to outpace supply in the second half of 2021, analysts say.
The IEA sees nearly 2 million bpd of extra supply possibly needed in the latter half of this year to meet expected demand growth, “even after factoring in the announced ramp-up of OPEC+ production.” The agency sees global refinery runs jumping by 6.8 million bpd from April to August, just as crude oil-fired power generation rises seasonally.
In the United States, “Demand across all products will hit record levels in the third quarter, pushed up by demand for transport fuels and petrochemical feed-stocks,” Ed Morse, head of commodities research at Citigroup, told Bloomberg.
Sure, uncertainties are still high considering the different rates of success with which various countries overcome the pandemic. Yet, higher than initially expected global economic growth, massive stimulus packages, and increased mobility with vaccine rollouts currently point to the world depleting the oil glut.
By Tsvetana Paraskova for Oilprice.com
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