Mixed Stock Signals Don't Hold Back Brent

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Brent is getting mixed signals from oil inventories. In OECD countries, where inventory data is transparent, history suggests stock levels must drain further to sustain a Brent price over $70 per barrel. Outside the OECD, where data transparency is lacking, stocks look like they will build going forward as China and India seek to replenish inventories and improve energy security. Meanwhile, Opec-plus continues to manage its supply to achieve further draws — even as it eases production cuts — supporting Brent at its current price over $75. This tightness keeps the path open for Brent to move higher. The market is dissecting several layers of inventory data and assumptions. Clearly visible is that OECD inventories are 155 million barrels below the 2016-19 average for crude and products combined. On the surface, that implies a tight market. But the relationship between OECD stock levels and OECD forward demand cover is a better gauge and suggests otherwise. In 2018, when Brent averaged $71.69/bbl, forward demand cover in the OECD was 59.4 days. It is now 61.7 days. To get to 2018 levels, the OECD alone must drain another 120 million bbl. Non-OECD stocks are non-transparent, especially for refined products. Energy Intelligence reckons that non-OECD tanks cover 54.5 days of forward demand cover. That is high from a historic perspective, but countries like China and India, the world’s largest and third-largest crude importers respectively, want to build even higher inventories as a cushion against supply disruptions.

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