Global oil inventories consist of three major components. The first is a combination of total OECD commercial oil stocks and Strategic Petroleum Reserves (SPR). OECD commercial stocks typically serve as a key indicator of the status of the oil market, as seasonal variations are linked to oil demand through an inverse relationship. Stocks in OECD countries are covered by data routinely obtained through national government reporting systems.
The second major component is non-OECD inventories, which have become more important in recent years as non-OECD oil demand has increased, requiring more stockpiling. Inventories in non-OECD are hard to track due to the lack of complete data. In the absence of regularly reported data, estimates are arrived at using information released by companies and ministries, as well as figures published in the JODI database, which features official country data.
Graph 1: OECD commercial stocks
The final component, independent storage as well as oil-at-sea, has emerged in recent years. While the latter provides an important operational link between exporter and consumer countries, it plays a negligible role in the market as the volumes at sea only fluctuate in a narrow range
An assessment of developments in global inventories since the inception of the Declaration of Cooperation (DoC) indicates diverging trends in OECD and nonOECD stocks. While OECD commercial inventories have fallen by 57 mb (Graph 1), non-OECD stocks are estimated to have seen a build of 138 mb (Graph 2). At the same time, the surplus over the latest five-year average has fallen massively in the OECD by 272 mb, while the overhang in the non-OECD has decreased by just 42 mb. This is an indication that the DoC has had a stronger impact on OECD inventories compared with non-OECD stocks, as emerging and developing countries continue to build their reserves, as well as fill new refinery capacity to meet growing oil demand.
Graph 2: Estimated Non-OECD stocks, mb
At the same time, since the beginning of the DoC to the end of 3Q19, non-OECD stocks have risen by more than 2 percentage points to now represent nearly a third of all global inventories. Meanwhile, in terms of days of forward demand cover, non-OECD inventories stood at around 42 days at the end of 3Q19, less than half of the OECD average of 92 days. The growing share of non-OECD inventories in global stocks demonstrates the important role that nonOECD stocks play in the market, a trend that will continue as the bulk of world oil demand growth is projected to come from the non-OECD and as these emerging countries increase their inventories to reach the OECD standard for days of forward cover.
If the data of all global oil stock components are recorded accurately, the change in total oil stocks should theoretically be equal to the difference between world oil demand and global supply. Therefore, monitoring developments in non-OECD oil inventories is crucial to grasp the full picture of global oil stocks and reduce the observed discrepancies in the supply/demand balance and global inventories in recent years. Looking ahead, the decisions taken by OPEC and participating non-OPEC producing countries in accordance with the ‘DoC' have clearly played a key role in supporting stability in the oil market. Better transparency in reported data will also allow for a more accurate assessment of the state of the oil market and could help in continuing these efforts on a more sustainable path.
Source: OPEC