The oil price rally came to a quick end in June, topping $50 per barrel but quickly falling back again. Optimism stemming from the four-month rally has vanished, and since June prices have retreated back to $45 per barrel.
The main reason for the renewed sense of pessimism comes down to the glut of oil sitting in storage. The U.S. has been dealing with oil stocks at 80-year highs since early 2015, a metric that has become closely watched in the market for signs on whether or not supply and demand are moving closer to balance.
After hitting an all-time high earlier this year, crude oil stocks began to decline in May, and although they are still above 500 million barrels, the industry has steadily drawn inventories down from their peak.
A more recent worry for the oil markets are the stubbornly high levels of gasoline sitting in storage. The problem of a glut of refined products has emerged as a top concern for oil traders since prices ran into a wall of resistance at $50 per barrel and the data on gasoline stocks became gloomy.
Like crude oil, gasoline inventories also hit a peak earlier this year, but instead of consistent declines, the weekly drawdowns have been anything but. Gasoline stocks have even increased four out of the past five weeks. The refined product glut has killed off the price rally. The EIA data releases are a tradition for the oil markets – the weekly publications spark movements in oil prices, whether up or down.
But the tricky thing about international prices trading on these metrics is that they only encapsulate what is going on in the United States. The markets know very little about what is going on in the rest of the world. As The Wall Street Journal notes in a July 24 article, countries such as China and Russia do not report data on their storage levels. In fact, there is very little transparency on market data in much of the world. “The data itself is so inconsistent,” Harish Sundaresh, portfolio manager and commodities strategist for Loomis, Sayles & Co., told the WSJ. “In countries like Nigeria, Brazil, Angola, it’s not trustable.”
By : oilprice.com