Taking Stock(s)
Parsing a fuller view of the state of global petroleum stocks ahead of OPEC+’s decision on whether or not to go ahead with planned—and “market dependent”—production cut easing in December.
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Global visible commercial petroleum stocks are consistently lower this year (vs. seasonal norms) as OPEC+ watches closely ahead of their rapidly-approaching planned December cut easing.
While onshore commercial crude stocks are notably low, virtually all other stocks—from onshore refined products to barrels at sea to China’s counter-trend estimates—tell a far less bullish story.
Stock tranches for which we have higher frequency data—i.e., China and on water—have actually risen through September and October thus far, softening the overall picture on a timeline that dovetails nicely with the recent fallback in crude pricing.
Stock data is surely giving OPEC+ a mixed picture, which could be used to justify action in either direction: pointing to low crude stocks to support cut easing plans or pointing to refined product and Chinese stocks to justify further market support.
Global visible commercial petroleum stocks are consistently lower this year compared to the seasonal norm and onshore commercial crude stocks, in particular, are lowest of the lot. Stock levels provide important signals to all industry participants but we can feel certain that OPEC+, in particular, is watching closely as the deadline to confirm the producer group’s planned December cut easing rapidly approaches.
The physical oil market is one giant stock and flow model. Radically simplified, companies produce crude oil and end users consume finished products, with “stocks” representing the cumulative residual of production and consumption—leftover barrels need to end up somewhere. A healthy store of inventory facilitates more seamless operations and marketing and also serves a secondary benefit as overflow/shortfall insurance to smooth out regular differences between supply and demand. Compared to supply and demand estimates, stocks are a more objective measure of cumulative market balances and the market’s health. And the Saudi Energy Minister has repeatedly stressed that market health is the primary factor determining whether OPEC+’s scheduled December cut easing will go ahead as planned.
But, as is so often the case, today’s headline stock figures—especially the most closely watched data from the US weekly reporting and OECD monthlies—belie the nuances of the underlying narrative. While onshore commercial crude stocks are notably low, virtually all other stocks—from onshore refined products to barrels at sea to China’s counter-trend estimates—all tell a far less bullish story.
So, let’s dig into petroleum stocks data to add further texture to our—and OPEC+’s—understanding of current market realities heading into the end of the year.