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Historic glut of oil accumulated during the pandemic is almost over

(Bloomberg) – The unprecedented oil inventory glut that accumulated during the coronavirus pandemic is almost gone, underpinning a price rally that is saving producers but annoying consumers. Barely a fifth of the surplus that flooded into the storage tanks of industrialized countries when oil demand collapsed, the last year stayed from February, according to the International Energy Agency. Since then, the remaining remains have been cut away as supplies were hoarded when immersed in the sea and a key depot in South Africa has been used up. The realignment comes as OPEC and its allies keep large parts of production offline and a preliminary economic recovery reboots global fuel demand. It is propping international crude oil prices near $ 67 a barrel, a boon for producers but a growing concern for drivers and governments worried about inflation. “Commercial oil stocks across the OECD have already fallen back to their five-year average,” said Ed Morse, director of commodities research at Citigroup Inc. “What remains of the surplus is almost entirely concentrated in China, which has built a permanent oil reserve. “The process is not quite complete. A considerable overhang appears to remain off the coast of the Chinese province of Shandong, although according to the consultants IHS Markit Ltd. may have accumulated to supply new refineries. Working off the remaining global surplus may take some time as OPEC + resuscitates some supply stoppages and new virus outbreaks in India and Brazil threaten demand. Nevertheless, at least the end of the flood seems to be in sight. Developed oil stocks in February were just 57 million barrels above their 2015-2019 average, the IEA estimates peaked at 249 million in July. This is a significant turnaround from last year, when lockdowns pushed global fuel demand down 20% and retail giant Gunvor Group Ltd. feared that the storage space for oil would run out soon In the US, the inventory has already effectively run out. Total inventories of crude oil and products declined to 1.28 billion barrels in late February – a level seen before the coronavirus outbreak – and are continuing to hover there, according to the Energy Information Administration. Last week, inventories on the east coast fell to their lowest level in at least 30 years. “Refining runs are gradually increasing in the US, which will have a positive impact on potential crude inventories,” said Mercedes McKay, senior analyst at FGE. There have also been declines in the country’s Strategic Petroleum Reserve, the tangle of salt caverns that store oil for emergencies. Dealers and oil companies were allowed to temporarily park an oversupply from former President Trump there and have tacitly removed about 21 million barrels from the location in recent months, according to people familiar with the matter. The excess oil that has accumulated on the world’s oceans is also decreasing. Ships became makeshift floating depots when onshore facilities ran short last year, but according to IHS Markit Ltd. the quantities have decreased. They have fallen by 27% in the past two weeks to 50.7 million barrels, the lowest level in a year. IHS analysts Yen Ling Song and Fotios Katsoulas estimate. A particularly clear symbol is the emptying of raw material tanks at the logistically critical hub Saldanha Bay on the west coast of South Africa. It’s a popular location for merchants, giving them the flexibility to quickly ship loads to different geographic markets. Inventories at the terminal are set to fall to 24.5 million barrels, according to ship tracking data monitored by Bloomberg, the lowest level in a year.The decline in the 23-nation OPEC + coalition, led by Saudi Arabia and Russia, is a confirmation of the bold strategy that they passed a year ago. Allianz cut production by 10 million barrels a day last April – roughly 10% of global shipments – and is now in the process of carefully restoring some of the barrels that were stopped. The Organization of Petroleum Exporting Countries has consistently stated that its main objective is to normalize swollen inventories, although it is unclear whether the cartel will open the taps once this is achieved. In the past, the lure of high prices has led the group to keep production tight even after reaching its inventory target. Mixed blessings For the consuming nations, the great destocking is less of a blessing. Drivers in California are already expecting to pay nearly $ 4 for a gallon of gas, according to data from the AAA auto club. India, a major importer, has complained about the financial problems of resurgent prices. For better or for worse, the balancing should continue. If demand picks up, global inventories will decline at a rate of 2.2 million barrels per day in the second half of the year, driving Brent crude to $ 74 a barrel or even more, Citigroup predicts: “US gasoline sales sink, ”said Morse. “Demand for all products will reach record levels in the third quarter, which will be boosted by the demand for fuels and petrochemical feedstocks for transportation.” For more articles of this type, visit bloomberg.com. Sign up now to stay ahead of the curve with the most trusted company in News Source. © 2021 Bloomberg LP

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