Summary
- The supply/demand imbalance in the oil market deteriorated in the past seven weeks.
- In the U.S. alone, the total oversupply increased by over 1.1 million barrels per day, judging by inventory data.
- Spare storage capacity in the U.S. is quickly shrinking, and the short-term contango is widening.
- Such dynamics would hardly be possible without proactive supply increases by key global exporters.
- At the current pace, a true “oil glut” may arrive in just a few months.
One might think that the steady slide in the price of oil that has continued since last July would result in a supply contraction at some point. However, that is not what industry statistics are indicating. In fact, oversupplyaccelerated in the past seven weeks, and the oil price collapse notwithstanding.
Oil Supply Is Not Slowing – It Is Accelerating
On its surface, it may appear that the current U.S. petroleum inventories, while elevated, are still within the historical range, and therefore, it may still be too early to refer to the current situation as an “oil glut.” Some spare storage capacity still exists within the system to accommodate additional physical volumes (Cushing, Oklahoma is an example, as discussed below).
(click to enlarge)
(Source: EIA, Zeits Energy Analytics)
However, the picture is quite different once the seasonality of demand is taken into account. The graph below shows the trajectory of the U.S. total petroleum inventory surplus relative to the 5-year average (the blue line). The surplus is calculated as the reported inventory less the average inventory during the same week in the previous five years (2009-2014). The graph shows that the pace of petroleum inventory build, adjusted for seasonal demand,accelerated over the past seven weeks by approximately 1.1-1.2 million barrels per day. In aggregate, the U.S. market appears to be currently oversupplied by approximately 1.5 million barrels per day on a seasonally adjusted basis. This is a dramatic change from just two months ago.
