By John Kemp
LONDON, May 12 (Reuters) - Global commercial oil
inventories were close to their long-term seasonal average at
the end of the first quarter of 2023 following massive releases
from the U.S. Strategic Petroleum Reserve (SPR) over the
previous 12 months.
In the countries of the Organisation for Economic
Cooperation and Development (OECD), commercial stocks of crude
and refined products stood at 2,804 million barrels at the end
of March (“Short-Term Energy Outlook”, EIA, May 12).
Commercial petroleum inventories had increased by 200
million barrels compared with the same month a year earlier but
over the same time the U.S. SPR was depleted by 195 million
barrels.
By the end of March, inventories were just 15 million
barrels (-0.5% or -0.09 standard deviations) below the prior
10-year seasonal average, down from a deficit of 192 million
barrels (-7% or 1.10 standard deviations) a year earlier.
The progressive normalisation of inventories took the upward
pressure off oil prices and calendar spreads over the past year.
Front-month Brent futures slipped to around $80 per barrel
at the end of March 2023 from $108 at the end of March 2022 and
a high of around $130 in May and June 2022, after adjusting for
inflation.
Real prices in March 2023 were in the 40th percentile for
all months since 2000, down from the 68th percentile in March
2022, and similar to March 2019 before the pandemic.
Chartbook: OECD petroleum stocks
Brent’s six-month calendar spread slipped to a backwardation
of $2.50 per barrel (79th percentile), down from over $10 (98th
percentile) a year earlier.
The spread is correlated with current stock levels as well
as traders’ expectations about the future balance between
production, consumption and inventory changes.
The rise in commercial inventories has therefore been
accompanied by a weakening of the calendar spread and downward
pressure on spot prices.
But downward pressure on prices and spreads would not have
been possible without the massive draw down of the SPR – which
is unlikely to be repeated.
More than one-third of the SPR has been depleted over the
last 12 months and the remaining stock is the lowest for almost
40 years since November 1983.
For the remainder of 2023 and 2024, there is little prospect
of another similar drawdown in the U.S. strategic reserve.
Prices and spreads will be much more directly responsive to
the balance between the impact of OPEC? restraint on production
and the global business cycle on consumption.
Related columns:
- Oil market has absorbed surprise production cut by OPEC?
(April 26, 2023)
- Oil market has fully absorbed impact of Russia's invasion
of Ukraine (March 9, 2023)
John Kemp is a Reuters market analyst. The views expressed
are his own
(Editing by Emelia Sithole-Matarise)
