The Impact of Oil Inventory and Overcapacity on Oil Price in 2019

Paul Hickin, vice president of Pratz Petroleum, will discuss the Asian tank Market and its global supply-demand balance in 2019. Here is a brief overview of his views. The oil market is calm. On the aggregate level, there are concerns about adequate supply. Analysts have questioned the rapidity of shale growth in the United States, the intensification of geopolitical risks and OPEC's decision to cut production after the end of 2019. On the other hand, people are concerned about real demand, the impact of global economic and sustained trade tensions on oil demand. OPEC's growing idle capacity and global strategic oil reserves will play an increasingly important role in addressing these uncertainties. Earlier this year, Fatih Birol, Executive Director of the International Energy Agency (IEA), in a separate interview with S& PGlobal Platts, highlighted geopolitical tensions in the Strait of Hormuz, Libya and Venezuela, as well as in China, the United States and other countries. Trade tensions between them. Countries have created new levels of uncertainty. "Geopolitics has become a key factor in the oil market and will become a key factor in the coming years. "I want to see that oil is determined by market forces, not by geopolitics," he added.

Oil stocks remained healthy in the first half of this year, which contributed to market stability. However, as the OPEC agreement shows real determination to reduce inventories to a five-year average through its 1.2 billion barrels/day reduction agreement, thereby rebalancing the market, which may still be vulnerable to volatility. This is the key to spare capacity and oil storage. Reserve capacity is the most effective and reliable area in which the market can bring sustainable production online to supplement supply disruptions elsewhere.

At present, global idle capacity is far below the level of this period. Even though OPEC has begun to reduce production to maintain affluent capacity, the market is vulnerable to extraordinary, destructive and geopolitical events. The International Energy Agency estimates that OPEC's idle capacity in the second quarter of this year was about 316,000 barrels/day, and Saudi Arabia's more than 2 million barrels/day. This is equivalent to more than 3% of global demand. Although this spare capacity is low in the broader scenario, in a sense, only 1.91 million barrels of spare capacity were available in the last quarter of last year, a recovery.

Russia also has some idle capacity in OPEC reduction agreement. The role of strategy and emergency oil reserve is the same as that of idle capacity, but there are important differences. According to IEA and EU regulations, Member States must maintain emergency reserves of crude oil and/or petroleum products, at least equivalent to 90 days of net import or 61 days of consumption, whichever is higher. Earlier this year, when the contamination of Russian crude oil meant that European buyers had to use their reserves, the regulation was very effective in preventing customers from suffering a 1 million barrels/day Druzhba pipeline accident. The United States has nearly 650 million barrels of crude oil as an emergency fuel reserve, known as the Strategic Petroleum Reserve, which can meet the needs of the United States for more than a month. Major consumers of Middle East crude oil, India and China also want to increase oil inventories.

The International Energy Agency has responded to the latest situation in the Strait of Hormuz, through which one fifth of the world's oil passes. Emergency oil reserves can compensate for "long-term" supply disruptions.

However, although the IEA is discussing the supply at hand, including emergency stocks and additional supply growth in American shale, Canada, Brazil and elsewhere, market tasks may be unsustainable. For example, when the United States and the International Energy Agency coordinated action in 2011 to replace disrupted Libyan supply, the resulting price relief seemed to last for a limited time. In fact, there seems to be enough oil to cope with any shortage, but idle capacity will be plagued by geopolitical risks and opaque supply and demand conditions, so the market is closely watching.