Energy Stat of the Week

Energy Stat: Why is the Market Underestimating the "Right" Amount of U.S. Crude Storage?
June 26, 2017

Over the past six months, the crude market seems to have become hyper-focused on the weekly U.S. crude inventory numbers, as it searches for direction. Even though the U.S. only represents about one-quarter of global oil inventories (thus doesn’t necessarily provide a holistic picture of what’s happening globally), it is the only “real-time” oil inventory indicator available to the market. The more comprehensive OECD oil inventory data (about one-half of global oil inventories) usually lagsthe weekly U.S. data by 2-3 months. Unfortunately, the commercial U.S. crude storage landscape is also one of the least understood topics within the crude markets. Time and time again, we have come across headlines/articles grossly overestimating the magnitude of the current U.S. crude inventory surplus. Most usually tout the bearish headline that U.S. crude inventories are at/near “all-time-highs” and some claim that crude stocks need to decline by a whopping 120-160 million bbls (or 20% to 30%) before they return to “normal” historical 10 or 5 year averages. Clearly this has been one of the bearish perceptions helping to drive oil prices lower.

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

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Marshall Adkins

J. Marshall Adkins
Director of Energy Research