Tensions over oil movements in the Strait of Hormuz and a sizable decrease in the amount of crude oil being held in storage have managed to lift oil prices this week. Fears persist, however, around the unknown oil that may be lurking in China, as well as lackluster demand growth forecasts, putting a ceiling on the gains. OPEC’s tenacity in sticking with its production quotas is having little impact, pointing to its weakening influence in oil markets.
Welcome to the Oil’s No-Man’s Land
There is a buildup of Iranian oil in what is considered an effective no-man’s land in the ports of China - the country with the most buying power to sway global oil demand.
The build up in inventory could prove problematic to OPEC as the cartel has been struggling along with Russia and other agreeable allies to tamp down production and draw down global crude inventories. We are now entering the third year of OPEC’s latest crusade to control the state of the oil market, but American shale has proven a worthy adversary.
One of the ways OPEC has tried to alter the perception of just how much oil is still overhanging demand is by changing the five-year period from which it calculates the five year average. Historically, this has been the last five years. Now, it is considering using 2010 to 2014 instead, which may paint a rosier picture of global inventories.
A true global inventory figure doesn’t actually exist, in part because several…