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The oil accumulated during the Covid-19 pandemic is almost gone; This factor favors producers and the recovery of prices, but worries consumers
The accumulated oil that was extracted during the Covid-19 pandemic may be coming to an end. The event strengthens producers and the recovery of prices in the market, however, this fact worries consumers. OPEC and its allies have most of their production off the market, while the economic recovery, which is still uneven, has reignited global fuel demand and rebalanced the market.
Excess oil near the end
According to the International Energy Agency, when demand for oil dropped sharply last year, at the start of the pandemic, only 20% of the surplus had filled the storage tanks of advanced economies. Since then, as the accumulated supply at sea and storage in South African tanks have decreased, the remaining stock has also fallen.
This oil glut trend during the Covid-19 pandemic has brought international oil prices close to $67 a barrel, which has benefited producers but also made drivers and governments increasingly wary of inflation.
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Ed Morse, head of commodities research at Citigroup, says oil inventories that are accumulating in the OECD are at the same average as they were five years ago. Morse still says that what was left, is currently totally concentrated in China, which, during the last few years, has been accumulating a permanent oil reserve.
Excess oil during the Covid-19 pandemic
Experts from IHS Markit – a British information and financial services company, say that there is still a surplus in one province in China, in Shandong. They even say that this oil accumulated during the Covid-19 pandemic can be used to supply new refineries.
It may take longer to clear the entire global oil surplus, because OPEC+ is resuming production shutdowns and a threatening new wave of demand, triggered by Covid-19 in India and Brazil, could influence the whole process. However, the end of the surplus appears to be in sight.
The IEA estimates that oil inventories in developed economies in February were just 57 million barrels above the 2015-2019 average and below the July peak of 249 million barrels.
The United States has a drop in the stock of oil produced during the Covid-19 pandemic
In the United States, the accumulated excess inventory has effectively been eliminated. According to data, at the end of February, total stocks of oil and derivatives fell to 1,28 billion barrels, a level prior to the arrival of Covid-19 and still close to that level. Last week, stocks on the east coast of the United States fell to the lowest level in at least 30 years.
The surplus oil accumulated in the ocean is also decreasing. According to IHS Markit, when onshore facilities ran out of oil storage space last year, ships turned into temporary floating warehouses, but the number plummeted.
The obvious sign of this trend is the reduction in the capacity of storage tanks at the Saldanha Bay Logistic Center, on the west coast of South Africa. This is a strategic location for trading companies, which allows them to transport goods quickly and easily to different countries. According to ship tracking data monitored by Bloomberg, the terminal's inventory dropped to 24,5 million barrels, the lowest level in a year.
