International Maritime Associates, Inc.

Crude Inventory Still High -- Brent Crude Trading in the Mid $60s

by Jim McCaul  6 March 2019

US crude inventory has been hovering between 430 and 455 million barrels since early December.   At 453 million bbls as of 1 March, US inventory is at the top of this range and around 4% above the five year average for this time of year.   

Increasing US crude production is at least partially responsible for the above average US 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.

Globally the IEA says oil stocks in OECD countries at end 2018 were 4.6 million bbls lower than at end 2027.

There is growing evidence that crude supply is decreasing.   The IEA says global oil supply fell 1.4 mb/d in January vs the previous month.   OPEC estimates global oil supply decreased by 1.03 mb/d in January compared with the preceding month.  The EIA reports US crude imports over the past four weeks were down 11.7% Y-O-Y.  

Meanwhile, Brent crude has traded in the range of $53 to $67 since the beginning of the year.   As of 6 March Brent was trading around $66.  WTI crude, the US oil pricing benchmark, is trading at a $10 discount to Brent, which reflects the continuing logistics bottlenecks in getting growing US tight oil production to market.

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.