Why Crude Oil Inventories in U.S. keeping going up

[dan_s]

In a recent interview of Tamar Essner, who is a lead energy analyst at Nasdaq Advisory Services.

Question: Oil prices dropped back below $50/bbl last month due to a large inventory build in the U.S. I thought that was an overreaction for several reasons, but one thing I noted was that despite the high inventory levels, crude oil imports remain very high. Why are we importing so much crude oil if inventories are so full?

Mr. Essner's response:
"That's a great question. I think there are a few things going on here. Of course, a lot of U.S. refineries are geared to take heavy, sour crudes that are imported since most of the domestically sourced crude is light and sweet. I think there is a fear of a border adjustment tax, and refiners are hoarding oil ahead of that. Second, since the market has been in contango, there was a strong incentive to store oil in vessels to sell in the future at higher prices. The market is moving toward backwardation, making it less economical to do so. The U.S. has the cheapest storage in the world, so I think you are seeing a lot of that floating storage come to the U.S. Also some of these imports reflect agreements made from before the OPEC cuts and we expect the pace of imports to the US to slow over coming weeks."


Morgan Stanley recently reported a 72,000,000 barrel decline in global oil inventories during February & March, with the majority of the drop coming from a decline in floating storage. All that happened over the last two months is that oil has moved from offshore to onshore. The "oil glut" is going away and the rate of decline will accelerate in Q2. - Dan