Nicholas Newman Eniday December 2017
No one is quite sure how much oil lies in storage. The exact amount held in state-owned and commercial storage around the world varies in response to prices, levels of production and demand, and seasonal variations. In order to balance supply and demand, OPEC and Russia joined efforts to cut record inventories by agreeing a 1.8 million barrels a day output cut for the first six months of 2017. This move allowed prices to recover slightly, but a resurgence of US shale oil output and weaker than expected demand growth, have made little inroads into the supply glut and levels of storage. In response, OPEC and Russia are expected to extend production cuts to March 2018 to lower inventories of crude to their five-year average.
The scale of oil storage
As of July 2016, IEA estimates public and private inventories of crude at 8 billion barrels, stored on land or floating in tankers, boats and barges. OECD countries account for 5.7 billion barrels or 60 percent of the world’s known crude inventory. The US stores around 2 billion barrels and China stores a little less. A conservative estimate puts total inventory at about 80 days’ worth of global consumption. Given this huge overhang of supply and resurgent US shale alongside increasing output from Iraq , Libya and Nigeria, it is not surprising that Brent crude, the international benchmark, hovered between $47 and $52 a barrel in Spring 2017.
Why store crude?
It is normal practice for oil companies to build up stores of oil and refined products to meet expected changes in seasonal demand and against any interruption of supplies. For instance, American refineries build up stocks of winter heating oil during the summer and autumn, which are stored on barges. In 2014, barges on the Hudson River delivered 20 million barrels of oil or 70 percent of the home heating oil to the port areas of New York and Boston for onward distribution to retailers’ storage tanks and subsequent delivery to customers in the region.