Some 50 million barrels of Saudi crude oil are approaching U.S. shores just as the Energy Information Administration reported the first inventory decline in months. This, according to Bloomberg, could reverse a tentative recovery in oil prices.
On Wednesday, the EIA reported that commercial crude oil inventories had declined by some 700,000 barrels in the week to May 8. The modest draw gave hope that the oil storage problem may soon begin to resolve itself even if total stockpiles were still above the five-year average for the season.
Now, shipping data from Bloomberg shows more than 50 million barrels of Saudi crude are about to arrive on the Gulf Coast and the West Coast by the end of June. Unless U.S. production falls sharply during this period and demand improves markedly, both at home and abroad, these barrels would need to be stored, pushing total inventories up once again. And this will pressure prices.
"The current contango exhibited by NYMEX's futures on WTI suggests a degree of recovery in the second half of the year. There's basically no incentive now for anybody to expand production, so logically the supply glut will gradually improve," said Michael Stark, market analyst at Exness.
Yet the second half of the year is still far away, and the immediate outlook remains grim. An additional 50+ million barrels of oil would undoubtedly have a strong negative impact on prices.
"If all the Saudi tankers unload, the crude they carry will offset during May almost all of the production reductions from March levels, effectively maintaining the current high storage filling rates," Rystad Energy senior oil market analyst Paola Rodriguez-Masiu said in a note, as quoted by Bloomberg.
The tankers were loaded before OPEC+ struck a new agreement to take 9.7 million bpd off the market in May and June when Saudi Arabia had embarked on an aggressive price war for market share after the previous OPEC+ deal collapsed in early March. Now, with demand still weak, they have few options: dock and unload or turn into floating storage, at a cost.
By Irina Slav for Oilprice.com
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