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Accumulated during the pandemic.. The historic oil glut is almost over.



The unprecedented oil glut seen in the markets during the coronavirus pandemic is almost over, but the price recovery that saves producers is upsetting consumers.


According to the IEA, barely a fifth of the surplus that flowed to storage facilities in advanced economies when oil demand collapsed last year remained until February, and since then, the remaining volumes have dwindled amid declining supply.

In a report published by Bloomberg, authors Grant Smith and Julia Lee said that oil supply and demand are in equilibrium at a time when OPEC and its allies are still pursuing a policy of curbing production, with global fuel demand recovering, and as a result, international crude oil prices have reached close to دولارا 67 a barrel, a boon for producers but a growing concern


Ed Morse, head of commodities research at Citigroup, said that trade oil inventories across the OECD have returned to a 5-year average, and the remainder of the surplus is almost entirely concentrated in China, which is building up a permanent Petroleum Reserve.


The authors explained that the accumulated oil volumes have not completely run out, and a large surplus appears to still exist off the coast of China’s Shandong province, which may have accumulated to feed the new refineries, according to IHS Markit Consulting Co., Ltd.


Getting rid of what is left of the global surplus may take some time, as the OPEC plus alliance is working to revive some stalled supplies, meanwhile an outbreak of new strains of coronavirus in India and Brazil could threaten to dampen demand, however, the end of the glut seems imminent.


According to IEA estimates, oil stocks in advanced economies were 57 million barrels above average between 2015 and 2019 as of February, compared with 249 million recorded in July.


These data reflect a marked shift from a year ago, when the closures caused global fuel demand to decline by 20% and Gunvor Group Ltd.warned of running out of oil storage space.

Falling stocks

The United States has practically exhausted the accumulated inventory, total crude oil inventories fell in late February to 1.28 billion barrels, a level recorded before the spread of the coronavirus, and still close to these figures, according to the Energy Information Administration. Last week, fell stocks on the east coast to their lowest levels since at least 30 years.

“We are beginning to see a recovery in refinery operations in the U.S., which will be helpful in reducing potential crude inventories,” said Mercedes McKay, senior analyst at FGE consulting.


There has also been a decline in the country’s Strategic Petroleum Reserve, salt caverns used to store oil for emergency use, Trump has allowed traders and oil companies to temporarily hold surplus supply, and in recent months they have removed about 21 million barrels from the site, according to people familiar with the matter.


Tankers were converted to temporary floating depots when onshore storage facilities filled up last year, but this amount is declining according to IHS Markit Ltd.the surplus has fallen by 27% the past two weeks to 50.7 million barrels, the lowest level in a year, according to the company’s analysts Yan Ling and Photios catsoulas.


Another important indicator is the depletion of crude storage tanks at the Saldanha Bay Centre, which is logistically important on the west coast of South Africa. It is a popular site for traders that allows them the flexibility to quickly send shipments to different markets, and inventories at the terminal are expected to drop to 24.5 million barrels, the lowest level in a year, according to ship data tracked by Bloomberg.


For the 23-nation OPEC plus alliance led by Saudi Arabia and Russia, the decline in inventories is testament to the success of the bold strategy they adopted a year ago: the alliance cut production by 10 million barrels per day in April, roughly 10 percent of global supply, and is gradually returning to production compensation.


The organization of Petroleum Exporting Countries has stated that its main goal is to return bloated stocks to pre-pandemic levels, but it is unclear whether the organization will allow a return to normal production once this goal is achieved. In the past, high prices have encouraged the group to continue to pursue a policy of limited production even after reaching the target.


Blessing and curse

For consumer states, getting rid of inventory is not a boon, and data from the American Automobile Association has shown that drivers in California are worried about paying nearly 4 for a gallon of gasoline. India, a major oil importer, has complained of financial problems that could result from a return to higher prices.


In various circumstances, the balancing of supply and demand should continue, and as demand increases further, global inventories will fall by 2.2 million barrels per day in the second half of the year, pushing Brent to 74 a barrel or even higher, Citigroup forecasts.





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