The price of oil has been stuck in a narrow range since the conclusion in mid-December of the OPEC/non-OPEC production accords. The thinking was that a floor had been put under prices, at an unspoken level of $50/bbl, so producers were probably comforted by the fact that Brent crude oil barely moved much below or above $55/bbl. Until 7 March, that is. The sudden move downwards saw prices return to almost exactly the same level as on 30 November – just below $52/bbl for Brent - when the OPEC deal was announced. The main trigger for the recent fall was mainly US-centred, caused by yet another build in crude oil stocks reported in preliminary weekly data from the Energy Information Administration (EIA).
The stock build should not, however, be much of a surprise. Prior to the Vienna agreement production from OPEC countries was increasing relentlessly; from September to November inclusive output surged by an estimated 580 kb/d. Export volumes are still appearing in storage around the world and, as part of this, US stocks are building. The US is seeing a triple surge in supply: rising imports (exports are also growing), rising domestic production and falling refinery utilisation. For crude imports, volumes so far this year are close to 400 kb/d higher than a year ago; US crude oil production has increased by 400 kb/d since September; and refinery runs fell from 17 mb/d at the start of the year to only 15.5 mb/d at the beginning of March. It is hardly surprising, therefore, that we have a big backlog of unabsorbed crude oil.
Broadening the picture, new data for total OECD oil stocks confirms the legacy of higher production last year. Stocks started falling in August from record high levels and by end-December were 120 mb lower, an average decline of nearly 800 kb/d. However, in January we saw an abrupt about turn with OECD stocks increasing by 48 mb (1.5 mb/d) and preliminary data for February suggests they have fallen back again only modestly.