International Maritime Associates, Inc.

Crude Inventory Still High -- But Brent Crude Heads for the Upper $60s

by Jim McCaul   15 February 2019

US crude inventory has been hovering between 430 and 450 million barrels since early December.   Current US inventory is at the top of this range, around 6% above the five year average for this time of year.   

Increasing US crude production is at least partially responsible for the above average inventory.   Crude production in the US is now 25% higher than the average production over the past five years.   Friction in the delivery chain will cause the inventory level to increase as total production increases.

There are indications that crude supply is beginning to decrease.   US shale producers have cut back on production, crude imports in the US over the past four weeks are down 11.2% from last year and tanker tracking data indicate a decline in Saudi crude shipments.   

Meanwhile, Brent crude has traded in the range of $53 to $66 since the beginning of the year.   As of 15 February Brent is trading around $66.50, the high thus far for 2019.   

Market sentiment has turned positive -- for the time being.    Most analysts expect that the OPEC+ supply curtailment deal will ultimately rebalance supply and demand and provide support for higher oil prices.   The Saudis are targeting getting crude prices back to the $80 range. 

But a bill in the US Congress to enable the Justice Department to sue OPEC+ members for antitrust violations has the potential to disrupt OPEC efforts to limit oil supply.    Penalties for collusion under the Sherman Antitrust Act are draconian -- and if the "No Oil Producing and Exporting Cartels Act" law is enacted oil pricing could become volatile.   

And slowing Chinese economic growth + weaknesses in the European economies add to the difficulty in bringing crude demand and supply back into balance.