• 3 minutes Shale Oil Fiasco
  • 7 minutes "Leaked" request by some Democrats that they were asking Nancy to coordinate censure instead of impeachment.
  • 12 minutes Trump's China Strategy: Death By a Thousand Paper Cuts
  • 16 minutes Global Debt Worries. How Will This End?
  • 5 hours americavchina.com (otherwise known as OilPrice).
  • 4 mins Democrats through impeachment process helped Trump go out of China deal conundrum. Now Trump can safely postpone deal till after November 2020 elections
  • 8 hours Forget The Hype, Aramco Shares May be Valued At Zero Next Year
  • 23 hours Natural Gas
  • 1 hour Iraq war and Possible Lies
  • 13 hours Joe Biden, his son Hunter Biden, Ukraine Oil & Gas exploration company Burisma, and 2020 U.S. election shenanigans
  • 1 hour POTUS Trump signs the HK Bill
  • 2 days Wallstreet's "acid test" for Democrat Presidential candidate to receive their financial support . . . Support "Carried Interest"
  • 2 days Everything you think you know about economics is WRONG!
  • 4 hours READ: New Record Conoco Eagleford Vintage 5 wells, their 5th generation test wells . . . Shale going bust . . . LAUGHABLE
  • 18 hours My interview on PDVSA Petrocaribe and corruption
  • 1 day Aramco Raises $25.6B in World's Biggest IPO
  • 2 days 2nd Annual Great Oil Price Prediction Challenge of 2019
  • 1 day Winter Storms Hitting Continental US
Arthur Berman

Arthur Berman

Arthur E. Berman is a petroleum geologist with 36 years of oil and gas industry experience. He is an expert on U.S. shale plays and…

More Info

Premium Content

Oil Fundamentals Improve But Inventories Will Keep Prices Low

Global oil supply and demand fundamentals moved in the right direction in September but surplus inventory will keep oil prices low for some time to come.

EIA’s September 2015 STEO (Short Term Energy Outlook) reported lower world liquids production and higher consumption but out-sized inventories remain a major obstacle to near-term oil-price recovery.

Crude oil stocks are the fundamental driver of oil prices and U.S. inventories are more than 100 million barrels above the 5-year average and more than 90 million barrels above the 5-year maximum (Figure 1).

(Click to enlarge)

Figure 1. U.S. crude oil stocks showing the 5-year average range and 2015 stocks to date.

Source: EIA and Labyrinth Consulting Services, Inc. Related: Lithium Market Set To Explode – All Eyes Are On Nevada

OECD stocks are similarly over-supplied and any discussion of higher oil prices is irrelevant until world production declines enough to begin working through inventory volumes.

That is not happening yet.

The latest data from EIA suggests significant improvement in fundamentals of supply and demand although one month does not make a trend. Global liquids supply decreased 560,000 bpd and consumption increased 680,000 bpd in September (Figure 2). The relative production surplus declined 1.24 million bpd but over-supply is still 1.16 million bpd.

(Click to enlarge)

Figure 2. World liquids production, consumption and relative surplus or deficit.

Source: EIA and Labyrinth Consulting Services, Inc. Related: Goldman Sachs, And 35 Other Companies, Target 100% Renewables

U.S. crude oil production decreased 120,000 bpd in September compared to August and has declined 465,000 bpd since April, 2015 (Figure 3).

(Click to enlarge)

Figure 3. U.S. crude oil production. Source: EIA and Labyrinth Consulting Services, Inc.

Oil futures prices have rallied $2 per barrel so far today (October 6th) on this news but the hard reality is that the world still has too much oil supply.

Figure 4 shows a strong correlation between year-over-year inventory levels and oil price. U.S. comparative inventories are the highest in history.

The oil-price collapse of 2014-2015 is proportional to the magnitude of the current inventory surplus. Related: Is Russia Plotting To Bring Down OPEC?

(Click to enlarge)

Figure 4. U.S. crude oil comparative inventory, CPI-adjusted (consumer price index) WTI price since 1987 and M1 Money Supply.

Source: EIA, U.S. Bureau of Labor Statistics, St. Louis Federal Reserve Bank and Labyrinth Consulting Services, Inc.

This follows the longest period of high oil prices in history (red shaded area in Figure 4). Oil prices exceeded $90 per barrel for 47 months between November 2010 and September 2014. This lead to increased investment in oil and gas thanks in part to the expansion of money supply also shown in Figure 4. The resulting over-production is why inventories are bloated and why oil prices collapsed in 2014 and remain near $50 per barrel today.

It is also why oil prices will not move significantly higher despite good news about supply and demand fundamentals.

By Art Berman

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play