Low OECD Petroleum Inventories should increase oil price

[dan_s]

OECD oil inventories fall to lowest for more than two years < In a world with less "noise", this would push WTI over $90/bbl.

Petroleum inventories in the advanced economies have depleted to the lowest level since 2022, after Saudi Arabia and its OPEC⁺ partners postponed planned production increases and U.S. shale growth decelerated.

Diminishing inventories have put a floor under spot crude prices and pushed the futures market into a steep backwardation, attracting increased interest from hedge funds and other investors in the last five months.

Since the end of January, however, the escalating tariff conflict between the United States and its major trading partners has sowed uncertainty about the economic outlook, capping further price rises.

Tariff and trade wars are expected to have a negative impact on industrial activity and boost inflation in the short term, both of which are likely to have negative consequences for oil use.

Total inventories of crude oil and refined products in commercial storage across the OECD were estimated at 2,737 million barrels at the end of January 2025. > OECD inventories were the lowest for this time of year since 2022 and before that 2015, according to data from the U.S. Energy Information Administration (EIA).

OECD inventories were 136 million barrels (-5% or -1.01 standard deviations) below the prior ten-year seasonal average.

The seasonal deficit was the widest for 28 months since September 2022, when the market was still recovering from the initial shock caused by Russia’s invasion of Ukraine.

It had more than tripled from 39 million barrels (-1% or -0.24σ) nine months earlier following repeated postponements of planned output increases by OPEC⁺ and slower growth in U.S. oil production.

Falling inventories have pushed crude futures into an increasingly steep backwardation as traders anticipate more limited crude availability.

Brent’s six-month calendar spread traded in an average backwardation of nearly $4 per barrel (87th percentile for all months since 2010) in January up from an average of less than $1.50 (46th percentile) in September.

Hedge funds and other money managers responded to depleting inventories by purchasing futures and options on Brent equivalent to 320 million barrels between the middle of September and the end of January.

By January 28, fund managers held a net long position equivalent to 308 million barrels (77th percentile for all weeks since 2011) up from a net short of 13 million on September 10 (the lowest position on record).

TRADE CAUTION

Spot prices and spreads would likely have risen even more sharply but for the escalating tariff conflict between the United States and its major trading partners which is likely to disrupt supply chains and prolong inflation. < When the FEAR of Tariffs fades, oil prices should go up.

The prospect of a renewed downturn in global manufacturing, persistent price increases and interest rates remaining higher for longer has unnerved investors.

Bullish optimism about a strong cyclical recovery in the major economies boosting oil consumption has given way to more caution.

Brent’s six-month spread has pulled back to an average of just under $3 so far in February (71st percentile for all months since 2010).

Fund managers have also trimmed their position in Brent to 290 million barrels (73rd percentile) in the most recent week ending on February 4.

The fund community is still basically bullish about the outlook for crude based on an expected cyclical economic upswing and the imposition of tougher U.S. sanctions on rival oil suppliers in Russia and Iran.

But that bullishness is now tempered by uncertainty about the impact of proliferating tariffs and the ability to avoid an unplanned escalation of the trade conflict.