OECD’s crude oil inventories
According to the EIA, OECD’s (Organisation for Economic Cooperation and Development) crude oil inventories declined 0.7% to 2,783.5 MMbbls (million barrels) in March 2018—compared to the previous month. The oil inventories were near the lowest level since March 2015.
OECD’s crude oil inventories declined by ~266 MMbbls or 8.7% from January 2017 to March 2018 due to ongoing production cuts, supply outages, and strong oil demand. Brent and WTI oil prices have risen ~35% and 31%, respectively, since January 1, 2017.
The United States Brent Oil ETF (BNO) and the United States Oil ETF (USO) track Brent and WTI crude oil futures, respectively. BNO and USO have increased ~32% and ~18.8%, respectively, since January 1, 2017.
OECD’s crude oil inventories peaked
OECD’s oil inventories hit a record high of 3,110 MMbbls in July 2016. Brent crude oil prices averaged ~$45 per barrel in July 2016. OECD’s oil inventories have declined 10.5% since July 2016. However, Brent oil prices have increased ~48.4% since July 1, 2016. Inventories and oil prices are inversely related. BNO has increased ~37% since July 1, 2016.
OECD’s oil inventories averaged 3,047 MMbbls in 2016 and 2,980 MMbbls in 2017. The EIA estimates that OECD’s oil inventories could average 2,838 MMbbls in 2018 and 2,904 MMbbls in 2019.
The rise in non-OPEC crude production in 2018 could lead to the rise in OECD’s crude oil inventories. However, production cuts, unexpected supply outages, and strong demand could draw down global oil inventories in 2018.
OECD’s oil inventories are 0.6% below the five-year average, which is bullish for oil prices. However, if OECD’s oil inventories rise towards the five-year average, it could be bearish for oil prices.
Next, we’ll discuss how global crude oil supply outages impact oil prices.