Oil Inventories Build Amidst OPEC Cut

Orbital Insight Chief Business Officer, Kevin O'Brien, shares the company's latest above ground oil storage data surrounding Chinese builds, Iran sanctions and the upcoming OPEC meeting on Bloomberg Commodities Edge with Alix Steel.

Video Transcript

Alix Steel: I'm going to bring in now Kevin O'Brien, Chief Business Officer at Orbital Insight. Tensions flare, oil prices barely budge moving much more in dovish FED and US trade hubs. Kevin, I'm looking for some insight as to why.

Kevin O'Brien: Well, we're seeing some really interesting trends happen both over the short term and long term. Just in the past 30 days we've seen a net build of about 30 million barrels out of a total inventory of about 3.1 billion in the market. Year to date it's been about 143 million barrels and year on year it's been increasing to 180 million. The really interesting piece and also tying into your past guest here is that China, China has been the past 30 days been about 13 million barrels of that buy. Over the past same period it's been about 50% of the net buy going off to China. When you think about some of the unrest going on in these markets, I think the people that can be really hurt by that is China itself.

Alix Steel: Well, I like that you were mentioning Asia and I'm wondering if the bills that we've seen have specifically been one offs, say maybe weather related. Say build here in the US versus China they weren't stockpile or running oil for example or no?

Kevin O'Brien: China we saw began to see in the third quarter of last year beginning to build. We saw acceleration in the fourth quarter and it's just continued on. So, I think in the last appearance we had said if China continues to see relatively inexpensive prices they're going to continue to build and that's what we're seeing in the data as well.

Alix Steel: Where is the surprise build?

Kevin O'Brien: I think China is the really interesting piece because as it continues to take more inventory, they need that. They have a daily appetite of around 12 million barrels a day.

Alix Steel: Mm-hmm (affirmative).

Kevin O'Brien: They're struggling to produce four million. If you think about flare ups in the Middle East in particular the people that are going to get hurt, not necessarily the US, it's China and to a greater extent Asia because most of the oil flowing through the Straits of Hormuz is going out to Asia, less so based on the really strong production you're seeing out of the US of about 1.7/8 million barrels per day. I think the US is relatively stable in that regard.

Alix Steel: So, the story even three weeks ago was that time spreads were really rising.

Kevin O'Brien: Mm-hmm (affirmative).

Alix Steel: Meaning you saw supply was actually quite tight say for the first month out versus 12 months down the road.

Kevin O'Brien: Right.

Alix Steel: And then quickly it felt like that story reversed. Is that the correct interpretation of that because you were on talking about stock builds weeks ago-

Kevin O'Brien: Correct.

Alix Steel: -and the time spreads were not reflecting that so are we accurately reflecting the builds?

Kevin O'Brien: I think you're seeing more accurate reflects right now because traditionally the markets have been looking at very small areas and extrapolating for the rest of the global markets. US is very well covered, but we've come in and said, "What about that 80% of the rest of the market?" We believe the market is now beginning to kind of consume a lot more of this information, reduce some of that volatility in actual supply in these regions.

Alix Steel: So, the backdrop is OPEC-Plus. They're going to meet, we think, July 1st and 2nd.

Kevin O'Brien: Mm-hmm (affirmative).

Alix Steel: If they continue then the cut of 1.2 million barrels of oil a day is that going to actually be enough to renew the kind of inventories that you're actually seeing?

Kevin O'Brien: What we're seeing, it's not working necessarily. We're continuing to see year on year builds of about 36 1/2 million barrels, 17.7 million of that coming from Iran. So even though the cutbacks that they announced, good idea to do that, you're still seeing a buildup of inventory levels across OPEC and specifically you're seeing the biggest builds coming out of Iran. That was as of two days ago with our data.

Alix Steel: So, tie that in then with the geopolitics in the region. Vessels, tankers, there are questions as to whether insurance is going to be too expensive or are tankers really going to want to take on the risk to go through the Strait of Hormuz where like 20, 30% of the world oil goes through. If that happens, does that backlog oil and build up storage regionally and sort of highlight your data even more?

Kevin O'Brien: It could potentially. I think if this goes, and getting back to the story of ... I think China's kind of gotten it right saying oil is inexpensive, let's just continue to buy. I think you're going to continue to see that because again, they need that. They can't necessarily have a drop in that continued buying in that area of the world. OCD was seeing some interesting data coming out as well, but I think really the Asia story ironically is the key driver in the Middle East story right now.

Alix Steel: All right, thanks so much, Kevin. Great to see you.

Kevin O'Brien: You bet.

Alix Steel: Kevin O'Brien, Chief Business Officer over at Orbital Insight.