OECD commercial oil inventories have long served as a key indicator of the state of the world oil market, indicating
whether it is tight or well supplied. In recent years, however, shifts in oil consumption patterns in the developed and
emerging markets have shown the shortcomings of continuing to solely rely on absolute OECD inventory levels as an
indicator of global oil market conditions.
In terms of definition, global oil stocks include crude and products held in storage tanks, as well as in pipelines and
tankers. Some of these stocks are commercial and others are government-owned strategic petroleum reserves
(SPR). While some OECD countries have long been obligated to hold the equivalent of 90 days of net oil imports in
their strategic reserves, some non-OECD countries have begun in recent years to develop their own strategic oil
stocks, as well as expanding their commercial inventories.
The four major components that make up global oil inventories. Oil-on-water has played a negligible
role in global oil stock developments as the volume of oil stored at sea has remained more or less stable in recent
years and at low levels. Similarly, OECD SPR inventories have also not changed dramatically. Over the last decade,
strategic inventories have only been released twice: Once in 2005 due to the damage of oil installations in the US Gulf
of Mexico from Hurricane Katrina and a second time in June 2011 following various oil supply disruptions.
OECD commercial inventories – the largest component of global oil stocks – are generally characterized by seasonal
variations over the course of the year. The long-standing seasonal pattern of OECD commercial oil stocks typically
shows a draw in stocks in the first quarter of the year, followed by builds in the second and third quarters, before
ending the year with a draw in the fourth quarter. However, since the financial crisis in 2008, the traditional seasonality
pattern of total OECD commercial oil stocks has become less pronounced. This mainly reflects reduced product
demand in the OECD. Taking out seasonal variations, OECD commercial oil stocks have remained relatively stable,
averaging around 2,650-mb over the last decade.
One of the most important changes in global stocks in recent years has been the increasing importance of non-OECD
inventories. This has been driven by the increased need for oil to fill new pipelines, refineries and storage tanks that
are being constructed in many developing countries, in addition to expanding commercial stockpiling and the
development of strategic reserves. Although actual figures on strategic stock levels in non-OECD countries are not
generally available, estimations based on information from companies and ministries in key non-OECD countries,
combined with data published by JODI Oil, indicate that since 2003, inventories have increased by nearly 800 mb.
This considerable build has led to an increase in the share of non-OECD stocks in global inventories from about 20%
in 2003 to around 30% currently. As a result, monitoring oil inventories in non-OECD countries is now essential to
understand developments in global oil stocks.
Moreover, given the decline in OECD demand, commercial oil inventory levels in the OECD can no longer serve their
traditional role as a barometer to assess the state of the market. Instead, a better picture can be seen by looking at
inventories in days of forward demand cover, which view stock levels in terms of likely consumption needs in the
coming quarters.
In days of forward cover, OECD inventories in 3Q13 stood at around 58 days. This is much higher than in
the period prior to the financial crisis (2003 – 2007) when forward cover averaged around 52.1 days. Given that
inventories have remained at broadly comparable levels, the underlying decline in OECD oil demand has clearly been
the driving force behind the upward trend in days of forward cover. Moreover, in the case of OECD Europe, stocks in
days of forward cover currently stand at very high levels of some 67 days, despite in absolute terms standing 50 mb
below the latest five-year average.
In light of the above, it is clear that OECD commercial oil inventories need to be considered in terms of days of
forward cover, rather than absolute levels, in order to reflect likely consumption needs. At the same time,
accurate and timely non-OECD inventory data has become an increasingly important indicator for assessing
global oil market conditions. The current healthy number of days of forward cover in the OECD combined with
data showing an ongoing expansion in non-OECD stocks highlight the fact that the market is well supplied.
