• 3 mins API Reports Seventh Large Crude Draw In Seven Weeks
  • 10 mins Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 55 mins EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 2 hours IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 3 hours Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 4 hours Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 5 hours Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 6 hours Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 13 hours WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 18 hours Norway Grants Record 75 New Offshore Exploration Leases
  • 22 hours China’s Growing Appetite For Renewables
  • 1 day Chevron To Resume Drilling In Kurdistan
  • 1 day India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 1 day India’s Reliance Boosts Export Refinery Capacity By 30%
  • 1 day Nigeria Among Worst Performers In Electricity Supply
  • 2 days ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 2 days Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 2 days Saudis To Award Nuclear Power Contracts In December
  • 2 days Shell Approves Its First North Sea Oil Project In Six Years
  • 2 days China Unlikely To Maintain Record Oil Product Exports
  • 2 days Australia Solar Power Additions Hit Record In 2017
  • 2 days Morocco Prepares $4.6B Gas Project Tender
  • 2 days Iranian Oil Tanker Sinks After Second Explosion
  • 5 days Russia To Discuss Possible Exit From OPEC Deal
  • 5 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
  • 5 days Kenya Cuts Share Of Oil Revenues To Local Communities
  • 5 days IEA: $65-70 Oil Could Cause Surge In U.S. Shale Production
  • 5 days Russia’s Lukoil May Sell 20% In Oil Trader Litasco
  • 5 days Falling Chinese Oil Imports Weigh On Prices
  • 5 days Shell Considers Buying Dutch Green Energy Supplier
  • 6 days Wind And Solar Prices Continue To Fall
  • 6 days Residents Flee After Nigeria Gas Company Pipeline Explodes
  • 6 days Venezuela To Pre-Mine Petro For Release In 6-Weeks
  • 6 days Trump Says U.S. “Could Conceivably” Rejoin Paris Climate Accord
  • 6 days Saudis Shortlist New York, London, Hong Kong For Aramco IPO
  • 6 days Rigid EU Rules Makes ICE Move 245 Oil Futures Contracts To U.S.
  • 6 days Norway Reports Record Gas Sales To Europe In 2017
  • 7 days Trump’s Plan Makes 65 Billion BOE Available For Drilling
  • 7 days PetroChina’s Biggest Refinery Doubles Russian Pipeline Oil Intake
  • 7 days NYC Sues Five Oil Majors For Contributing To Climate Change
Alt Text

Soaring Indian Oil Demand Grabs OPEC’s Attention

As Indian oil demand continues…

Alt Text

OPEC Should Thank Venezuela For Falling Production

OPEC’s crude oil production remained…

Oil Fundamentals Improve But Inventories Will Keep Prices Low

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:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News