LONDON, Jan 21 (Reuters) - U.S. petroleum inventories have
continued to slide over the last month and are well below their
normal seasonal levels, which has helped push oil prices to
their highest since 2014.
The market remains chronically under-supplied with OPEC+ and
U.S. shale firms unable or unwilling to meet rapidly recovering
demand at prevailing price levels.
Total commercial crude and products inventories have fallen
in 56 out of the last 81 weeks according to data from the U.S.
Energy Information Administration ("Weekly petroleum status
report", EIA, Jan. 20).
Commercial inventories have declined by a total of 273
million barrels since peaking in July 2020, more than reversing
the 204 million increase during the first wave of the pandemic
Commercial inventories are now 52 million barrels (4%) below
the pre-pandemic five-year seasonal average for 2015-2019, the
lowest level for the time of year since 2015 (https://tmsnrt.rs/3Ku4RF7).
Crude stocks are 17 million barrels (4%) below the average,
with stocks around the NYMEX delivery point at Cushing
particularly tight at 16 million barrels (33%) under the
Distillate stocks are also especially tight at 23 million
barrels (15%) below the average and at their lowest seasonal
level since 2014. Only gasoline inventories appear normal and
almost exactly in line with the average.
The scarcity of crude and distillates has pushed front-month
Brent and WTI futures prices to their highest since October
2014, as traders anticipate supplies will tighten even further
in the course of 2022.
Chronic under-supply and the low and falling level of
inventories are manifest in large backwardations occurring in
both futures contracts.
Brent's six-month calendar spread is trading in a
backwardation of $4.80 per barrel (in the 98th percentile for
all trading days since 1990) while WTI is trading in a
backwardation of almost $5.50 (97th percentile).
Reflecting this, hedge funds and other money managers had
accumulated lopsided bullish positions in both WTI (77th
percentile) and middle distillates (83rd percentile) by Jan. 11.
In recent months, OPEC+ has expressed concerns about the
Omicron variant of coronavirus dampening oil consumption, while
U.S. shale producers have focused on the risk of over-producing.
In fact, the market has remained under-supplied almost
continuously for 18 months, with the result that conditions are
now among the tightest for a quarter of a century.
The persistent shortage of petroleum production is real.
- Depleted U.S. petroleum stocks support oil prices
- Bullish oil outlook crushed by rise in coronavirus cases
(Reuters, Dec. 9)
- Oil positions and prices back to neutral after
Omicron-triggered flash crash
- No shock and awe after U.S.-led emergency oil release
(Reuters, Nov. 24)
John Kemp is a Reuters market analyst. The views expressed
are his own
(Editing by David Evans)