The New World of Tracking Oil Inventories After OPEC’s June 2018 Meeting
The energy world looks to Vienna this week as OPEC and non-OPEC oil producers gather on June 22 for the 174th OPEC Meeting. The keynote topic: deciding what to do about production cuts initiated in early 2017. How successful have the cuts been in reducing inventories? Will they be extended or, as many expect, relaxed to accommodate an increase in production?
At Orbital Insight, we monitor 25,000 floating roof tanks (FRTs) daily, the largest amount of FRTs ever tracked, and that gives us unprecedented visibility into global crude oil inventories. We’ve used the breadth of our coverage to create the Global Geospatial Crude Index (GCI), which is a single number reported in millions of barrels daily to our subscribers. The GCI objectively captures global crude inventory insights on a daily basis, whereas anyone tracking the oil industry typically refers to either the IEA’s Monthly Oil Market Report or OPEC’s Monthly Oil Market Report, which provide oil inventory data on a lagged basis from approximately 30-40 days.
Returning back to tomorrow’s meeting, OPEC cuts were originally enacted to rebalance weak prices caused by bloated global oil inventories, which were fueled by the U.S. shale boom and the lifting of the U.S.crude export ban. Now, fundamentally strong demand, rising prices, geopolitical uncertainties, and the U.S. being bottlenecked by export infrastructure constraints has led some key OPEC and non-OPEC nations to express interest in loosening their production restraints. Using the GCI, we know that stock draws did not stop in March 2018, which could make a case for putting more oil into the market. In addressing the crude oil stock draws, the key producers also have to wrestle with accommodating involuntary production shortfalls in Iran and Venezuela within their overall production policy.
So, have the cuts achieved their goal and reduced global oil inventories to better balance supply and demand? To date, no single international body monitors all of the world’s oil inventories, and in some cases the only data available is self-reported. It’s hard to get a clear answer about where the market stands regarding inventories. This is where Orbital Insight is stepping in to provide daily updates on the global inventory picture.
2018 global inventories have been below 2017 levels, and FRTs show that inventories are trending lower. However, we still haven’t seen inventories quite fall to the average level we observed from 2014-2016. The closest they’ve come is within about 58mn barrels, as shown below.
Given dropping global inventories, strong demand growth, and U.S. shale production that’s temporarily trapped by infrastructure, this week’s meeting will determine if OPEC believes the global economy can withstand higher prices and surprises the market by extending cuts, or as expected, choose to increase production. Either way, we’ll be monitoring to see how the results of the June 22 meeting impact global oil inventories.
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