The crude market isn’t that tight, but the oil market is, reports Platts.
Fiction becomes fact
The bullish narrative going into the Russian-Ukraine crisis was driven by a short-term perspective and flawed thinking around crude fundamentals. Now the excessive strain on supplying transport fuels is turning bullish fiction into fact.
Market watchers may be guilty of viewing leading indicators out of context.
Take the apparent lack of oil in commercial storage. OECD stock levels are indeed below the five-year average and have sunk to multiyear lows. But what this fails to recognize is that by any longer yardstick these inventories are still high and were over-inflated by the shale boom the previous decade, where an excess of light sweet crude had nowhere to go except into tanks.
Industry stocks dip
The International Energy Agency reported OECD total industry stocks fell by 42.2 million barrels to 2,611 million barrels in February, which still puts inventories above the 2013 nadir and even above averages seen a decade earlier.
The storage argument often overlooks China, too. The second biggest oil consumer has built up its capacity over the past five years, and crude stocks increased 20% since 2019, according to various analyst estimates.
Market watchers also point to OPEC+’s lack of global spare capacity, which, while true, downplays the fact that for much of the last two decades the average oil buffers have not been that much higher than the 2 million b/d mark.
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