Global Oil Storage to Fill Rapidly as Consumption Plunges: Kemp

No comprehensive data exists on total storage volumes available in the petroleum supply chain or the amount unfilled at the start of the year, but the International Energy Agency (IEA) has said consumption could have shrunk by 20 million barrels per day because of the pandemic and national lockdowns.

If that is roughly accurate, storage will be filling at the rate of 600 million barrels per month.

And if Saudi Arabia and Russia increase their output as a result of the volume war by an extra 2-3 million bpd between them, the storage would fill even faster, at 650 million to 700 million barrels per month.

The proportion of unused storage available to cope with the drop in consumption and unchanged production is unknown but filling quickly.

Stocks are likely to be growing by 10% per month. On any plausible estimate for global storage, the entire supply chain is likely to be completely full within 2-4 months.

OIL STOCKS

Petroleum inventories are usually categorized by ownership (government or private), geographic location (OECD or non-OECD), stage of processing (crude or refined products) and position along the supply chain.

Primary inventories include stocks held at oilfields, in transit and at refineries and blending terminals. Secondary stocks include those held by wholesale and retail distributors. Tertiary inventories are held by end users.

Some parts of the supply chain are relatively well covered by government statistics, others remain almost entirely invisible and largely a matter of informed guesswork (https://reut.rs/2UGNTKI).

Primary inventories in the OECD, both government and industry owned, are reported monthly by statistical agencies such as the IEA and the U.S. Energy Information Administration.

But there is little information on secondary and tertiary inventories or storage capacity in the OECD or on any part of the supply chain and storage capacity outside the OECD area.

TANK TOPS

The IEA estimates that there were 2.9 billion barrels in industry storage and 1.5 billion barrels in government storage in the OECD area at the end of January 2020.

At the end of January the former was a mere 200 million barrels below the record high of 3.1 billion barrels – reported in July 2016, shortly after the end of the previous oil price slump.

Stocks are held by producers, refiners and governments outside the OECD area, as well as on ships – either in transit or stationary vessels used as floating storage.

Total global primary inventories of crude and products are probably about 6-9 billion barrels, with secondary and tertiary stocks on top of that (“Should we worry as oil stocks hit 3 billion barrels?” Reuters, Nov. 20, 2015).

If this estimate is roughly correct, global petroleum stocks are rising by about 10% a month at present, which would fill all available storage rapidly.

gCaptain