Beginning of End of Oil Glut? | Russell T. Rudy Energy LLC
After the oil price crash in 2014, operators began trying to offset revenue losses due to price decreases by increasing production. This caused a surplus of oil, often referred to as the “crude oil glut” which has been the nemesis of oil prices since then. However, for prices to begin to recover, the excess inventories of both crude oil and refined products need to be addressed in its totality.
A recent article in “Rigzone” points out that OPEC realized this in late 2018 and took action. The cartel explicitly stated that reducing this overstock was the intention of its agreement with non-OPEC producers to cut production in the first half of 2017 by 1.8 million barrels of oil per day. The ultimate objective was to reduce inventories.
Initially, many skeptics questioned whether the signatories to the cutback agreement would actually comply with their assigned production quotas. Fortunately, compliance with production limits has been surprisingly good, and preliminary indications are that crude and product inventories are starting to decline. Examples of declining stocks can be seen across the globe.
The persistent glut of Nigerian oil seems to be subsiding and Iran has started drawing down on crude stored on floating tankers. Typically refineries perform maintenance at this time of year as they adjust from heating oil to gasoline production. This means refineries usually will temporarily reduce the amount of crude they process. Nevertheless, Richard Mallinson with Energy Aspects observed, “Across the first quarter of the year, crude stocks built by much less than they did in the first quarter of last year even though refinery maintenance globally was much heavier.”
The encouraging news is not confined to crude stocks. According to consulting firm FGE, refined products inventories in the U. S., Amsterdam-Rotterdam-Antwerp, Singapore and Japan had declined by 6.5 million barrels by mid-March to 631 million barrels. FGE went so far as to say they might drop as low as 611 within the next three weeks. If so, this would bring product stocks close to their 10-year average.
While all of this is good news, we would do well to remember Winston Churchill’s warning after the Allied victory over the German’s at the second battle of El-Alamen in 1942. He cautioned that this is not the beginning of the end, but rather “The end of the beginning.”
To read the article in its entirety, please go to http://www.rigzone.com/news/oil_gas/a/149169/OPECs_War_On_Oil_Overhang_Starts_To_Bear_Fruit/?all=HG2 .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
