Oil Inventories Down to Dangerously Low Point

Oil Inventories Down to Dangerously Low Point
Only China appears to have a reasonable inventory cushion against the unexpected, according to a new BofA Global Research report.

Crude oil inventories are down to a dangerously low point across Europe, North America, and OECD Asia just as OPEC+ spare production capacity has dwindled to the lowest levels since April 2020.

That’s according to a new BofA Global Research report, which was sent to Rigzone on Monday. The report also highlighted that petroleum product inventories have fallen to “precarious levels” for middle distillates and gasoline “as the market heads into the peak of the U.S. driving season”.

“As a result, refined petroleum cracks have recently spiked to record levels, contributing to boost volatility across the oil complex,” the BofA Global Research report stated.

“Most worryingly, strategic oil barrels held by OECD governments are already low and set to decline steeply going forward, leaving consumers exposed to any future negative supply shock,” the report added.

Only China appears to have a reasonable inventory cushion against the unexpected, according to the report, which noted that this rising inventory buffer could be explained because “Chinese fuel demand is exceptionally weak (an unplanned buildout) or because China has been hoarding oil to protect itself against the next energy crisis (a conscious effort)”.

The BofA Global Research report warned of risks to BofA Global Research’s oil price forecasts, but also highlighted the role of low inventory levels in pushing prices higher.

“With monetary policy tightening and recession at the top of investors’ minds, a downturn in global oil consumption is a risk to our projected Brent average of $102 per barrel for 2022 and 2023,” the report stated, adding that higher Russian petroleum exports to countries outside the West is another risk to watch.

“However, low inventory levels, limited spare capacity, and a post pandemic demand recovery in EMs should combine to press Brent above $120 per barrel over the coming months,” the report added.

At the time of writing, the price of Brent crude oil stood at $112.29 per barrel. Brent has closed above $120 per barrel on several occasions this year, including on March 7 ($123.21 per barrel), March 8 ($127.98 per barrel), and March 25 ($12.65 per barrel).

USA Crude Oil Inventories

According to the Energy Information Administration’s (EIA) latest weekly petroleum status report, which was published on May 18 with data for the week ended May 13, U.S. commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, decreased by 3.4 million barrels from the previous week. The EIA report outlined that, at 420.8 million barrels, U.S. crude oil inventories are about 14 percent below the five year average for this time of year.

Total motor gasoline inventories also decreased by 4.8 million barrels and are about eight below the five year average for this time of year, the EIA report highlighted, adding that finished gasoline and blending components inventories also decreased. Distillate fuel inventories increased by 1.2 million barrels and are about 22 percent below the five year average for this time of year, while Propane/propylene inventories increased by 0.3 million barrels and are about 10 percent below the five year average for this time of year, according to the EIA report, which highlighted that total commercial petroleum inventories decreased by 2.9 million barrels.

According to the EIA’s previous weekly petroleum status report, which was released on May 11 with data for the week ended May 6, U.S. commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, increased by 8.5 million barrels from the previous week. At 424.2 million barrels, U.S. crude oil inventories were still about 13 percent below the five year average for that time of year, however, the report outlined.

To contact the author, email andreas.exarheas@rigzone.com


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