Global oil inventories slump amidst OPEC production cuts, resurgent demand

(Bloomberg) – Global oil inventories, already near a six-year seasonal low, slumped sharply over the past month with OPEC production cuts and resurgent demand starting to affect the supply of crude.

Worldwide onshore stockpiles were seen at about 3.37 Bbbl as of Wednesday, a slump of about about 60 MMbbl from a month earlier, according to energy analytics firm Kpler. They have recovered somewhat since Aug. 15.

Much of the reduction was seen in China, where data from industry consultant OilChem show operating rates at state-owned processors are set to hit a record this month, suggesting healthy demand for crude.

U.S. nationwide inventories have also been steadily falling for months and are now at the lowest since end of 2022 and that of Cushing — the nation’s biggest storage hub — declined the most since 2021. All the while, Saudi Arabia has been extending its commitment to cut its production, while Russia also curbed its exports.

“This is a result of the strong demand we are currently seeing,” said Jorge Leon, senior vice president of oil market research at Rystad Energy. “The voluntary cuts of OPEC, together with the additional 1 MMbpd cut by Saudi Arabia, initially for July and now extended into September, have finally turned the market into a significant deficit.”

Oil prices have rallied 15% since late June with the International Energy Agency saying global oil demand will soar higher this month after hitting a record — despite the economic gloom, including in top buyer China.

The scale of declines observed by Kpler surprised some analysts.

Goldman Sachs Group Inc. omitted the data from a regular weekly report, before including them again a few days later, while noting that publishing such high-frequency statistics is inherently challenging.

But the numbers support the notion that oil-market conditions are strengthening.

Goldman said bearish risks from persistently higher-than-expected stockpiles have eased. ING Groep NV said the current backwardated market structure — where cargoes for immediate delivery are pricier than those for months down the line — will encourage a further drawdown in inventories.

“It makes little sense to carry inventory, so would expect that inventories continue to draw,” Warren Patterson, head of commodities strategy at ING in Singapore. “A drawdown in inventories and the expectation that this will persist through until the end of the year suggests that prices still have more room to run higher.”

There’s also likely to be less refinery work than initially expected during the autumn season, due to strong mobility indicators and recent support in fuel margins, according to Leon at Rystad. That will likely boost runs and put further pressure on de-stocking of supplies, he said.

Kpler said the steepest part of the drop coincided with a rise in hurricane-level storms hitting China at the end of July and into August.

The figures have recovered from their trough earlier this month but remain lower than the same time last year. They also come ahead of a period where global crude stockpiles tend to decline as refineries complete routine work and ramp up processing.

The current stockpile drawdowns are likely to continue even if voluntary cuts by Saudi Arabia and Russia are fully reversed in the final quarter, said Paul Horsnell, head of commodities research at Standard Chartered Bank.

“If the cut is extended or deepened, then the draws will be larger than our current fourth-quarter projections,” he said. “Wouldn’t say the position is precarious, but the reduction of inventories certainly supports higher prices.”