Consider the following case: peanut butter inventories at a children’s Summer camp, in Vermont.
In the Summer of 1995 there are 2000 lbs of peanut butter at the beginning of the season. The camp depletes its inventory of peanut butter by summer’s end. At the same camp ten years later, in Summer of 2005, the food manager reports, “peanut-butter inventories are at their highest levels since 1995, at 2100 lbs. We easily have enough peanut-butter to last the Summer.” Problem: enrollment has risen from 1000 campers to 1400 campers, over that ten year period.
This is an accurate portrayal of how global oil inventories have been reported in the press, this decade. Although the Days' Supply measure is provided by both IEA Paris and EIA Washington, that metric has largely been ignored. It was a crucial piece of data that was both simple and accessible, and yet most observers repeatedly made comparisons between 2005 inventories, and inventories from not only ten, but from twenty years ago. Strange, but true.
Now however, in the midst of a global industrial collapse, with a strong tail-off in demand growth for oil, it actually makes sense to take a look at global oil inventories on an absolute basis. This weekend I spent time pouring over this data.
Unsurprisingly, the data indicate what this site and others have suggested: that a global de-stocking has been underway actually since late 2006 and this has continued apace in the shadow of falling production, and very cheap prices. I intend to go more fully into detail on this data in February’s newsletter, coming later this month. | January 2009 newsletter is still free, click here | Simply put, inventories globally are neither particularly “high” , or low, but are back at oft-repeated levels seen several times since 1998.
Make no mistake: inventories on a Days' Supply basis have indeed moved upward, strongly. The global oil market is in a very bearish posture for good reason. Oil prices are not near 40.00 because of “sentiment.” But at a juncture where demand shifts hard and fast, as happened over the past 6 months, it’s useful to at least take a peak at inventories on an absolute basis. (click on chart to enlarge)
Source: IEA Paris Oil Stocks Data