“Peak oil” concerns seem like something out of the distant past at this point, as today’s discussion of the global oil market centers on the seemingly ever-growing supply of crude. As the FT reports, global oil inventories have just hit record levels:
The [IEA] said inventories in industrial nations increased by 13.8m barrels to 2.98bn, according to the latest data for September. They surpassed seasonal trends, more than 257m barrels above average levels.The overhang in oil production that developed in the US as shale output surged has spread across Europe and Asia and is not just restricted to crude but also includes refined fuels. Aside from the build-up across the world’s onshore storage tanks, 100m extra barrels are at sea.
In fact, the world has so much oil that abundance is actually becoming a logistical problem: We’re not sure where to stash all the crude sloshing around the global market. Most onshore storage sites are full-up at this point, so producers have taken to offloading their cargo onto tankers and anchoring the ships off the coasts of major oil ports. Houston, for example, had some 41 tankers idling outside its port last week. As Reuters reports, these bottlenecks are proving very costly for producers:
The lack of space to unload oil is tying up the tankers needed to keep oil moving, and wells running. The bottlenecks could force oil suppliers into quick, cut-priced sales just to free space, adding more pressure to oil prices already close to six-year lows. […]“We’re alarmed,” said Eugene Lindell, senior crude market analyst with JBC Energy. “There are growing indicators that it’s getting harder to digest this crude.”
Brent crude is currently trading below $44 per barrel, and America’s West Texas Intermediate benchmark is barely above $40. When we look at the supply side of the market, it’s not hard to see why prices have fallen so dramatically, and, with demand unlikely to rise enough to offset this glut, prices seem set to stay a bargain for the foreseeable future. Producers like U.S. shale firms and OPEC’s petrostates will be discouraged by this news, but consumers, at least, ought to be delighted.