OPEC’s cuts have been less effective than the market believes

Catogory : Market Report

OPEC’s effort to slice into the global oil glut hasn’t gone as well as it would like you to believe, the Dallas Fed argued this week.

While it appears OPEC’s production cuts have reduced oil inventories in developed nations to half of their level above the five-year average, much of that decline came because the five-year average has drifted higher.

“Only half of this decline represents actual inventory draws,” the Federal Reserve Bank of Dallas said in a new report. “The new five-year average includes 2017 inventory data and is therefore higher.”

In other words, OPEC’s goal posts have been moved. In 2016, the five year average of crude inventories in developed nations sat around 2.75 billion barrels. This year, it increased to roughly 2.85 billion barrels. At the same time, those stockpiles have fallen by 100 million barrels over the past year, to about 2.95 billion barrels.

It also seems that this stored oil hasn’t disappeared. Chinese inventories, excluded from calculations of OECD stockpiles, have grown by 200 million barrels over the past year.