Resurgent demand almost wipes out oil glut

US stockpiles at 2-year low, China at lowest since September 2020

Global crude inventories that ballooned during the pandemic have shrunk to the lowest level in 20 months as an economic rebound in top consumers China and the US drive a robust recovery in fuel demand.

About 2.97 billion barrels of crude oil were stored onshore globally as of September 5, the least since January 2020 before Covid-19 eviscerated demand, according to data analytics firm Kayrros. US stockpiles are at a two-year low, those in China are the smallest since September 2020, while inventories at the African hub of Saldanha Bay are at the lowest since April last year.

Faltering lately

Oil consumption in the world’s top guzzlers has surpassed pre-pandemic levels and underpinned a red-hot rally in crude prices, although it’s faltered over the last couple of months due to the delta variant of the virus. China’s depleted inventories also have some in the market predicting that the biggest crude importer will start replenishing its giant reserves again soon.

“There was really a surge in crude oil demand, especially in the first half of this year,” said Victor Shum, vice president of energy consulting at IHS Markit. However, he predicted that the drawdown of inventories will slow as Opec+ pumps more. Global inventories swelled in July last year to the highest level since Kayrros started compiling its data in May 2016. Since then, there’s been a steady drop across most regions. Onshore storage in Europe and the Middle East are about 28-to-35 million barrels lower than a year earlier, according to Kayrros.

US stockpiles may fall even further if output halted by Hurricane Ida resumes slower than the return of refining capacity, said Sri Paravaikkarasu, head of Asia oil at FGE. Higher crude prices have also encouraged refiners to tap more stored oil, while a bullish backwardation structure has made it uneconomical for traders to hoard crude.