Currently, demand is outstripping current production, and so oil supplies have recently been supplemented by draws on inventories to meet consumer needs. Given the uncertainty of supply and demand, petroleum inventories are often seen as a precautionary measure.

Recent Developments

Global crude oil storage capacity is believed to be up to 7.2Bbbl, including commercial and strategic storage. However, for technical reasons, only about 80% of this nameplate capacity is usable. Global oil storage, which serves as a tangible measure of the oil market balance, is grouped in three major components.

• The first group is the OECD’s commercial oil stocks and Strategic Petroleum Reserves (SPR). The OECD commercial stocks serve as a key indicator of the status of the oil market balance, as they are frequently published by national government reporting systems, and as the seasonal variations in the OECD commercial stock levels are inversely correlated with oil demand.

• The second major group is the non-OECD commercial inventories and SPR, which have become more important in recent years as non-OECD oil demand has increased, taking a higher share than OECD demand in total world oil demand and requiring more stockpiling. However, non-OECD inventory levels are hard to track due to a lack of complete data. In the absence of regularly reported data, stock levels in non-OECD inventories are often estimated using information released by companies and ministries, as well as data published in the JODI database.

• The final group is oil at sea, which includes “oil afloat” and “oil in transit”.

In the June quarter of 2020, the global oil market saw oil supply heavily outpace world oil demand, leading to a drastic surge in global oil inventories within a short span of a couple of months. In response to this critical situation, OPEC and non-OPEC oil producing countries participating in the ‘Declaration of Cooperation’ (DoC) announced voluntary productions adjustments commensurate with the huge oil stock surplus, to achieve the rebalancing and stabilisation of the global oil market.

Since their historic peak in June 2020, global oil inventories have declined significantly. By the end of September 2021, they had fallen by 938Mbbl, with all components witnessing stock draws.

Over this period, total OECD commercial and SPR stocks have dropped by 411Mbbl and 46Mbbl, respectively, while non-OECD stocks and oil at sea have fallen by 320Mbbl and 160Mbbl, respectively (EIA, IEA, METI and OPEC data).

Moreover, OECD commercial oil inventories, compared to the latest five-year average (2015- 2019), reached a high of around 270Mbbl in June 2020, clearly reflecting a huge oversupply.

This surplus declined to a deficit of 163Mbbl at the end of September 2021, mainly driven by the DoC’s successful efforts to stabilise the market and supported by higher refinery crude runs, an indicator of an improvement in oil demand on the back of the economic recovery following the initial impact of the Covid-19 pandemic.

Clearly, the global stock draws during 2021 were largely due to the efforts of the DoC and a pick-up in global oil demand, which outpaced global supply by 0.1Mbpd, 1.5Mbpd and 2.2Mbpd in the March, June, and September quarters of 2021, respectively. This is equivalent to a total implied stock draw of 342Mbbl.

AME forecasts that global oil supply will outpace global oil demand in both 2022 and 2023, resulting in rising global oil stocks. AME expects global oil storage will rise by an average of 0.5Mbpd in 2022 and 0.6Mbpd in 2023, and that these inventory builds will generally put downward pressure on crude oil prices.

Commercial Stock Movements

The following commercial oil stock movements were recently estimated by OPEC. OECD commercial inventories are a key indicator of market fundamentals. Low OECD inventory levels raise concerns over market stability and capacity to absorb shocks.

OECD

In November, total OECD commercial oil stocks were down by 16.0Mbbl month on month. At 2,721Mbbl, they were down 389Mbbl year on year and 247Mbbl lower than the latest five-year average. Within the components, crude and products stocks fell by 12.7Mbbl and 3.3Mbbl, respectively, month on month. Total commercial oil stocks in November fell in OECD Americas and OECD Europe, while they rose slightly in OECD Asia Pacific.

US

In December, total US commercial oil stocks fell by 27.4Mbbl month on month to 1,195Mbbl. This was 148.6Mbbl, or 11.1%, lower than the same month in 2020, and 93.9Mbbl, or 7.3%, below the latest five-year average. Crude and product stocks fell month on month by 15.3Mbbl and 12.1Mbbl, respectively.

Japan

In Japan, total commercial oil stocks in November rose slightly by 0.1Mbbl month on month to settle at 121.4Mbbl. This is 19.0Mbbl, or 13.5%, lower than the same month in 2020, and 24.8Mbbl, or 17.0%, below the latest five-year average. Crude stocks rose by 2.8Mbbl, while products stocks fell month on month by 2.7Mbbl.

Europe

In November, total European commercial oil stocks fell month on month by 14.9Mbbl to 1,040.3Mbbl. At this level, they were 124.8Mbbl, or 10.7%, below the same month a year earlier, and 60.4Mbbl, or 5.5%, lower than the latest five-year average. Crude and product stocks fell month on month by 12.0Mbbl and 3.0Mbbl, respectively.