Now here’s a chart that will undoubtedly get the oil bulls excited.
From Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank, it shows the change in US crude oil inventory levels on a per day basis, comparing what’s happening this year compared to prior years.
One thing immediately stands out.
They’re falling quickly, albeit from extremely elevated levels earlier this year.
As Dhar points out, the decline has come despite US crude production levels moving back towards record highs this year.
US crude oil stockpiles fell by 5.4 million barrels per day (mmbbl) in the week ending 25 August — well above forecasts of a 1.9 mmbbl decrease,” he wrote in a note released today.
“US oil inventories are now only around 1.8 days of supply above the 6 year average for this time of year. That marks the smallest oversupply margin this year, which is significant given that margin was as high as 7.7 days in early March.
“Those falls come even as US production continues to creep higher. Output is currently at around 9.53mb/d, which is only around 80kb/d lower than peaks reached in June 2015.”
So as US crude production lifts, stockpiles are drawing down, and rapidly.
Dhar says this suggests production limits introduced by OPEC and non-OPEC members in November last year — and extended again in May this year — are working to bring global crude markets back to balance.
“Their plan is working to reduce OECD global stockpiles to the 5-year average with such a rapid drawdown of US stockpiles,” he says.
“We see a fundamental decline in global stockpiles by the end of the year… that would pave the way for higher oil prices.”