“La sabiduría de la vida consiste en la eliminación de lo no esencial. En reducir los problemas de la filosofía a unos pocos solamente: el goce del hogar, de la vida, de la naturaleza, de la cultura”.
Lin Yutang
Cervantes
Hoy es el día más hermoso de nuestra vida, querido Sancho; los obstáculos más grandes, nuestras propias indecisiones; nuestro enemigo más fuerte, el miedo al poderoso y a nosotros mismos; la cosa más fácil, equivocarnos; la más destructiva, la mentira y el egoísmo; la peor derrota, el desaliento; los defectos más peligrosos, la soberbia y el rencor; las sensaciones más gratas, la buena conciencia, el esfuerzo para ser mejores sin ser perfectos, y sobretodo, la disposición para hacer el bien y combatir la injusticia dondequiera que esté.
MIGUEL DE CERVANTES Don Quijote de la Mancha.
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Inventories of crude oil and refined products have soared, but seem to be having little impact on prices.
Measured
in terms of the number of days of demand that could be met by the
stored oil, OECD commercial inventories have risen from 57 days at the
end of 2013 to 67 days at the end of March this year. They exceed by 5
days the volume of oil in storage at the depth of the financial crisis,
after global oil demand had collapsed.
Surging oil inventories are normally associated with
falling oil prices, because they're seen as a signal that there's too
much oil about. Until early this year, this time was no different. The
76 percent drop in crude oil prices that accompanied the rise in
inventories is well known.
But the recent surge in prices, which
have jumped by more than 75 percent from their mid-January low, has not
been accompanied by a drop in the volume of oil in storage. Quite the
opposite.
The relationship between stockpiles and prices has
broken down because higher inventories are now needed to meet surges in
demand or disruptions to supply. That's very different to what the
global market had got used to over the past two decades, when these
changes were met by a pickup in production, made possible by OPEC's
spare production capacity.
Companies hold inventories for a
variety of reasons, which can be broadly defined as logistical,
speculative and security. Oil is needed to fill pipelines, refineries
and the supply chain; that's the logistical inventory. Varying volumes
may be held to profit from expected future movements in prices; the
speculative inventory. Oil is also held to provide a cushion against
both anticipated and unexpected fluctuations in supply and demand, this
is the security inventory. All of these factors have contributed to the
growth in the oil stockpile since the end of 2013.
OPEC spent much
of the 1990s and the 2000s trying to convince the global oil industry
that it did not need to hold large, expensive stores of oil. Instead, we
could all rely on OPEC producers to anticipate market needs and alter
supply as required, making use of their spare production capacity.
As Gadfly argued recently,
that spare capacity has largely disappeared since Saudi Arabia
abandoned its role as swing producer in November 2014 and raised
production. With almost everybody else producing as much oil as they
can, room to boost production is now all but non-existent outside the
kingdom. Much of the reported spare capacity is the result of
disruptions to supply that can't be restored without improvement in some
underlying political problem -- whether the unrest in the Niger River delta, or the chaos engulfing Libya.
The situation has worsened since the start of the month.
A series of unforeseen supply outages, most notably from Canada and
Nigeria, has removed at least 2 million barrels a day of supply from the
market. But oil prices haven't moved much, because the growing stores
create a sense that there's plenty of crude available.
But in the
absence of spare production capacity, companies will have to keep
inventories that they can dip into to meet fluctuations in demand
instead of relying on OPEC to ramp up production like it normally would.
The normal relationship between inventories and prices may yet reassert itself.
But
for now, so long as higher stockpiles are needed in place of spare
production capacity to meet spikes in demand, or disruptions to supply,
high levels of inventory need not mean downward pressure on prices.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story: Julian Lee in London at jlee1627@bloomberg.net
To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net