The first oil squeeze on the horizon
I wanted to illustrate the current situation and where we are heading with regards to oil balances.
Section A in the chart of US oil stocks below is the last 3 months. The grey shadow is the average inventory for the last 5 years.
From the chart it is not very obvious how fast stockpiles are declining compared to the ‘normal’ for this time of year so I have extrapolated forwards.
For both the last 3 months (A) and the next 3 months (B) I have drawn in the 5 year average range boundaries. From this I can work out the 3 months drop from this ‘expected’ value. Then I apply the same drop on top of the average range movement for the next 3 months. At current rate of shortfall of supply we end up at point X.
Now this clearly is a crude (pun intended) analysis mainly because I am using the range movement rather than the average movement.
The biggest reason I can see for the drop is oil transport has not shifted enough to make up for the drop in shale production. With the US self sufficient under Trump, there was no need to transport much oil to US. Now world oil flows will have to rebalance to address where the oil is needed and supply everywhere is tight (article).
The change in policy with Biden compared to Trump has also not helped and they seem to have their heads buried in the sand and be helping Russia and OPEC+. The balance of power has shifted towards OPEC and Russia for both oil and gas, Germany is as bad as the US.
OPEC will keep oil supplies tight, they are quietly leading the world in the current situation and the squeeze is going to show up in the best location for them as the chart above predicts. This situation can’t turn around quickly (like an oil tanker LOL) because we are already in the draw down season, shale is not ramping up and Biden is shutting oil down. There is no line of oil tankers on it’s way to the US.
If everyone keeps ignoring the issue (hard to address ‘dirty’ oil and gas), I doubt the battered industry are going to come to the rescue (as they have a ‘you deserve this’ attitude) so in 4-6 weeks we should see the result.
