Commentary – Oil Storage Outside of the US Anticipated to Tank
This week we are introducing a new chart in our ARC Energy Charts publication (Chart #18).
Given the market’s spotlight on developed-country oil inventories, we want to monitor the progression of oil and product storage levels in two groups: the OECD Americas [1] and the rest of the OECD.
As a result of the multi-year oil glut, crude oil and product storage tanks in OECD countries are about 400 MMB higher than typical levels. But with OPEC and partners agreeing to make production cuts this year, oil traders and market watchers alike are closely observing these inventories, which are anticipated to draw down from record highs.
The United States has the most current data for tracking crude oil storage levels, and the Energy Information Administrations’ (EIA) weekly updates are followed closely. However, considering that the OPEC and non-OPEC production cuts are occurring outside of North America, the full impact of the reduced quotas isn’t likely to be seen in US oil inventories. In fact, with both US and Canadian oil output still increasing, North American inventories are expected to stay stubbornly high this year.
Instead, market watchers need to keep a close eye on the inventory levels in the rest of the world. Figure 1 shows the oil storage levels in OECD countries, current to December 2016 and published by the International Energy Agency (IEA). In the second half of 2016, oil storage in the rest of the OECD (not including the Americas) was already starting to decline. Assuming that OPEC and non-OPEC producers deliver on the agreed production cuts, the pace of inventory drawdown will accelerate into 2017.
As new data is available, we will be keeping our eyes focused on our newest Energy Chart. Declining OECD storage levels outside of North America will be an early indicator that the three-year-old oil glut is starting to clear.
[1] At the end of Sept 2016, OECD Americas inventory was approximately 90% in the United States, Canada was 8% and Chile and Mexico made up 3%.
