Inventories of oil stored on land and at sea have risen sharply in recent weeks, an early warning sign of deteriorating market conditions that could put oil prices under pressure for years.
Oil prices have dropped to about $65 a barrel from a recent high of $82 in January due to rising concerns about the potential economic impact of U.S. President Donald Trump’s trade war and the surprise decision by OPEC+ to ramp up production.
Yet, until now, no data has shown a marked drop in oil consumption. Refining profit margins are holding strong and demand continued to grow by nearly one million barrels per day (bpd) in the first quarter of 2025 compared with a year earlier, according to the International Energy Agency.
Recent oil storage data, however, suggests conditions have started weakening as inventories are building up around the world. While this trend has multiple causes, both economic and geopolitical, it clearly suggests that demand is not keeping up with supply.
In the IEA’s latest report published on May 15, it said that total global oil inventories rose for a second consecutive month to 7.7 billion barrels in March. While this is still below the five-year average, the direction of travel appears clear. The energy watchdog expects oil inventories to rise by an average of 720,000 bpd this year and accelerate to 930,000 bpd next year.
Meanwhile, analysis of near real-time satellite data by Kayrros showed oil stock building has accelerated in recent weeks.
Global onshore inventories of crude oil rose by more than 100 million barrels to 3.127 billion barrels between mid-April and mid-May. That’s the highest reading for onshore inventories since the COVID-19 pandemic, with the exception of a seasonal peak in July 2023, according to Kayrros analyst Augustin Prate.
Importantly, China, the world’s top oil importer, saw storage hit a record high of 1.127 billion barrels in May, the Kayrros data showed. This development may partly reflect a concerted effort by the government and refiners to stockpile while oil prices are low. But the global trend of rising onshore inventories remains bearish nonetheless.
OUT TO SEA
The recent increase in oil stored in tankers at sea is another negative signal. Storing oil at sea is more expensive than on land, so when floating storage volumes rise, it means producers and refiners are taking longer to find buyers and discharge cargoes, indicating slowing demand or rising supplies, or both. Under extreme market conditions, traders store oil in tankers when onshore tanks have filled up.
The volume of crude, condensate oil and refined fuels that has been in floating storage on tankers for seven days or longer has risen over the past month by 14% to more than 160 million barrels, the highest in two years, according to data from analytics firm Kpler.
In the case of refined products, volumes have risen to around 86 million barrels, the highest since the depths of the pandemic in late 2020.
On the crude side, floating storage reached 74 million barrels this week. Iran and Russia are largely responsible for this figure, accounting for 29 and 11 million barrels, respectively, the Kpler data shows.
Rising Iranian stocks could be partly explained by the recent tightening of U.S. sanctions on Iran and several of China’s so-called teapot refiners and port operators, as these restrictions led to a sharp drop in buying from China, the biggest importer of Tehran’s oil in recent years.
And the rise in Russian crude oil in floating storage may reflect the recent drop in oil prices. Western sanctions cap Russian crude at $60 a barrel, but this price becomes a lot less attractive when global benchmarks are only slightly higher.
High-frequency data obviously can change quickly, and the full oil demand picture will only be determined once official data is published by the IEA and other government agencies around the world in the coming months.
But for now, the apparent acceleration in inventory increases on land and at sea suggests oil demand is falling behind the increases in supply – just as OPEC+ is preparing to increase production even more. If this trend continues, today’s oil prices may have to fall quite a bit further before the market rebalances.
Source: Reuters