Historic oil glut of pandemic has vanished

Inventory clearing: A contractor works on a crude oil pipeline at the US Department of Energy’s Bryan Mound Strategic Petroleum Reserve in Freeport, Texas. Stockpiles in the US east coast have fallen to their lowest in 30 years. ─ Bloomberg

NEW YORK: The unprecedented oil inventory glut that amassed during the coronavirus pandemic is almost gone, underpinning a price recovery that’s rescuing producers but vexing consumers.

Barely a fifth of the surplus that flooded into the storage tanks of developed economies when oil demand crashed last year remained as of February, according to the International Energy Agency (IEA). Since then, the lingering remnants have been whittled away as supplies hoarded at sea plunge and a key depot in South Africa is depleted.

The rebalancing comes as the Organisation of the Petroleum Exporting Countries (Opec) and its allies keep vast swathes of production off-line and a tentative economic recovery rekindles global fuel demand. It’s propping international crude prices near US$67 (RM276) a barrel, a boon for producers yet an increasing concern for motorists and governments wary of inflation.

“Commercial oil inventories across the Organisation for Economic Co-operation and Development (OECD) are already back down to their five-year average, ” said Ed Morse, head of commodities research at Citigroup Inc. “What’s left of the surplus is almost entirely concentrated in China, which has been building a permanent petroleum reserve.”

The process isn’t quite complete. A considerable overhang appears to remain off the coast of China’s Shandong province, though this may have accumulated to feed new refineries, according to consultants IHS Markit Ltd.

Working off the remainder of the global excess may take some more time, as Opec+ is reviving some halted supplies and new virus outbreaks in India and Brazil threaten demand. Still, the end of the glut at least appears to be in sight.

Oil inventories in developed economies stood just 57 million barrels above their 2015-2019 average as of February, down from a peak of 249 million in July, the IEA estimates.

It’s a stark turnaround from a year ago, when lockdowns crushed world fuel demand by 20% and trading giant Gunvor Group Ltd fretted that storage space for oil would soon run out.

In the US, the inventory pile-up has effectively cleared already. Total stockpiles of crude and products subsided in late February to 1.28 billion barrels – a level seen before the coronavirus erupted – and continue to hover there, according to the Energy Information Administration. Last week, stockpiles in the East Coast fell to their lowest in at least 30 years.

“We’re starting to see refinery runs pick up in the US, which will be good for potential crude stock draws, ” said Mercedes McKay, a senior analyst at consultants FGE.

There have also been declines inside the nation’s Strategic Petroleum Reserve, the warren of salt caverns used to store oil for emergency use. Traders and oil companies were allowed to temporarily park oversupply there by former president Donald Trump, and in recent months have quietly removed about 21 million barrels from the location, according to people familiar with the matter. ─ Bloomberg

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