Global oil inventory stands at record level
Oil inventories have swelled to the highest level on record as crude producers intensify the battle for market share, putting unprecedented strain on the world’s energy infrastructure.
The International Energy Agency, the west’s oil forecaster, said stocks in developed countries had ballooned to almost 3bn barrels — the equivalent to more than a month’s supply of global oil consumption.
Even though demand has been robust this year, crude inventories have continued to rise at more than 1m barrels a day, with storage tanks filling quickly and long lines of ships forming at key ports around the world.
As a result oil prices, which have halved in the past 18 months, might fall even further to encourage refiners to process more crude and force more production offline, traders said. Brent crude, the global benchmark, fell to below $44 a barrel on Friday.
“This massive cushion has inflated even as the global oil market adjusts to $50 [a barrel] oil,” the IEA said in its monthly report.
Opec production is running above its formal output ceiling of 30m b/d as Iraq and Saudi Arabia have increased output to near record levels. At the same time, Russia is pumping oil at post Soviet era highs as it fights for customers in Europe and Asia.
Neither Opec, which meets next month in Vienna for its twice yearly ministerial meeting, nor Russia has shown any desire to cut production.
Saudi Arabia, the cartel’s de facto leader, upended the oil market a year ago after abandoning its longstanding policy of adjusting output to support prices.
Oil prices that averaged more than $100 a barrel since 2010 had led to a surge in output from high-cost rivals, such as oil from US shale fields and Canadian tar sands that threatened Riyadh’s market dominance.
Khalid al-Falih, chairman of the state-owned Saudi Arabian Oil Company, told the Financial Times this week that the kingdom was determined to stick to its policy in spite of the financial pain it had inflicted on the country. “The only thing to do now is to let the market do its job,” he said.
The IEA said global oil supplies breached 97m b/d in October, 2m b/d more than a year ago, with two-thirds of the increase coming from Opec producers.
Lower prices have stimulated demand, which is rising at the fastest pace in five years as motorists enjoy cheaper fuel. But the Paris-based organisation said growth would slow next year with forecasts for a mild winter in Europe and North America also likely to impact consumption.
“If it turns out to be true, bulging stock levels will add further pressure and oil market bears may choose not to hibernate,” the IEA said.
The overhang in oil production that developed in the US as domestic output surged has spread across Europe and Asia. It is not just restricted to crude and also includes refined fuels such as gasoline and diesel.
Opec this week said inventories in industrial nations had only surpassed an “excessive level” of 150m b/d twice in the past 10 years.