Brent oil price have remained stubbornly above $100 a barrel in 2011. Part of the reason why has been the decline in days supply of OECD Total Oil Stocks.
Following the financial crisis of 2008, total oil inventories in the OECD climbed steadily, rising above 60 days supply. However, after the low in oil prices in 2009, inventories started a gentle decline which has now seen levels fall below 59 days supply.
Over the years it has been my observation that while the level of days supply influences oil prices, changes in direction matter more.
After the OECD oil inventory release in early Summer, used to counter the loss of Libyan oil, I explained that such a release would depress prices only in the short term. The reason? By pounding inventories lower, the OECD was simply reducing the safety cushion of stocks that could be used to counter the next geo-political incident. (see: The Dark Side of the OECD Inventory Release, June 2011).
According to the IEA, days supply of total oil stocks are currently running at 58.4 days as of September.
The global oil market may have its eye however on a part of the ratio that could change quickly: demand. Volatility in oil prices, which has picked up again recently, suggests the following question.
A weak global economy is either about to get even weaker, thus forcing days supply suddenly higher—or—an already weak global economy contains an even greater risk: a growth spurt that drives days supply quickly lower.
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