July 24, 2019

OPEC Will Fall Short of Their Goal

At the most recent OPEC and non-OPEC ministerial meetings at the end of June OPEC reiterated that its goal is to return OECD crude stock levels to the five-year average seen in 2015. The 2015 average was specifically cited during the press conference because subsequent years suffer from bloated stock levels, and thus provide too high a baseline. However, Stratas Advisors’ most recent forecast of OECD stock levels, released as part of the Short Term Outlook Service’s latest Crude Oil Outlook shows that this may be an impossible target to meet before March 2020, raising the question of what happens next.

  • Stratas Advisors forecasts OECD stocks will be ~105 mmb above the 2015 five-year average level in March 2020.
  • This disparity shrinks significantly in April 2020 due to a jump in the historic average level that current inventories would be compared against (March 201-2014 average = 985 mmb April 2010-2014 average = 1,000 mmb).
  • If OPEC remains significantly far from its target, the likelihood rises of another continuation in the production agreement or a change to the stated goal.

OPEC claims (correctly) that crude stocks were inflated by several years of oversupply, and thus measuring against today’s five-year average does not paint an accurate picture. Measured against today’s five-year average, total OECD crude stocks are quite healthy, averaging 2.6 mmb below the average May stock level seen in 2014-2018 (also referred to as the “current five-year average”).

OECD Stocks versus Current Average

However, change the timeline and a very different picture emerges. And it is this picture that OPEC is concerned with. Looking at the chart below you can see that OECD crude stocks today are still well above the 2015 five-year average, the average inventory size in a given month from 2010-2014. In fact, crude stocks are 136 million barrels above the 2015 level.

OECD Crude Stocks versus Historic 2010 2014 Average

This would imply that OPEC has quite a bit of work to do. In our latest Quarterly Crude Oil Outlook, we released updated expectations for OECD crude stock movements. Below, we append that forecast to current stock levels to see if OPEC will be successful before their self-imposed March 2020 deadline in hitting their target of parity with 2015 average stock levels.

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