U.S. inventories of crude oil topped 500 million barrels for the first time in decades, according to the U.S. Energy Information Administration’s weekly storage report. Analysts surveyed by The Wall Street Journal had predicted supplies would rise by 3.5 million barrels on the week.
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For the week ending January 29, crude oil inventories rose by 7.8 million barrels from the previous week.
At the Cushing hub in Oklahoma, the delivery point for WTI futures contracts, storage inventories are 23 million barrels above the five-year average. The positive difference between the future-dated and the front-month prices is called a contango market.
The International Energy Agency said recently that the world is “drowning” in oil, with inventories worldwide remaining high.
When inventories are high and rising, costs to store crude oil and petroleum products generally increase. Since then, the market has changed. Crude will have to be diverted elsewhere if Cushing, which has had to update its storage capacity in recent years, runs out of room to stockpile oil. It estimates that the trade will be unviable until contango conditions reach $10-$12 per barrel. Distillate fuel production also decreased, averaging 4.4mm barrels per day.
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Crude oil imports in the U.S. averaged about 8.3m bpd last week, up by 647,000 bpd from the previous week. Ultra-low sulfur diesel (ULSD) inventories in the United States have grown more than total motor gasoline inventories since mid-2014. These traders buy front-month crude oil futures contracts and take delivery upon their expiration. With the distillate market in steep contango in January, small amounts of floating storage are being reported near ports located in northwest Europe, where low water levels in rivers have slowed deliveries of petroleum products.
