June 11, 2020 / 1:46 PM / a month ago

Column: U.S. crude stocks bloated by aftermath of volume war

LONDON (Reuters) - U.S. petroleum inventories climbed again last week to a record 2.1 billion barrels, mostly as a result of rapid crude imports, with an unusually large volume again arriving from Saudi Arabia.

Enbridge Inc.'s crude oil storage tanks are seen during a tour of their tank farm in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford

Once the extra tankers loaded at the height of the Saudi-Russian volume war have finished discharging, which should be within the next week or two, U.S. crude stocks should stabilise.

Total stocks of crude and refined products increased by almost 12 million barrels in the week to June 5, and are up by a total of 197 million barrels over the last 12 weeks.

Crude accounted for two-thirds of last week’s rise, with 6 million barrels put into commercial storage and another 2 million added temporarily to the strategic petroleum reserve.

But the flow of crude into inventory each week has decelerated by roughly half compared with the peak, when the lockdown was most intense in April.

(Chartbook: tmsnrt.rs/3fb96oH)

Crude imports remained unusually elevated at 7 million barrels per day (bpd), which was in the 75th percentile for all weeks over the past year.

Much of the brisk importing is being sustained by an unusually heavy flow of crude loaded in Saudi Arabia (“Weekly petroleum status report”, EIA, June 10).

VOLUME WAR AFTERMATH

Imports from Saudi Arabia were over 1.5 million bpd for the third week running – more than three times the 0.4 million bpd average over the previous year.

Surging imports from Saudi Arabia are the aftermath of the ill-timed volume war launched in March just as the coronavirus epidemic accelerated.

Tankers which loaded extra crude in Arabia in late March and early April, at the height of the volume war, are only now discharging the oil into the United States.

As a result, U.S. imports from Saudi Arabia last week were around 7 million barrels higher than the average over the past year, which essentially accounted for all the inventory build.

Similarly, imports from Saudi Arabia over the last three weeks, at 32 million barrels, far exceeded the 9 million-barrel average for any other three-week period in the last year.

Extra crude from Saudi Arabia in the last three weeks more than accounted for the 20 million barrel increase in U.S. stocks reported over the same period.

However, Saudi Arabia reduced its production in May and June as part of the output limits agreed with its partners in the expanded OPEC+ group of exporting nations, with additional voluntary cuts on top of that.

So the current rise in U.S. crude stocks should fade once the current wave of tankers finish discharging, with inventories stabilising or even falling, as the flow of crude from the kingdom slows.

John Kemp is a Reuters market analyst. The views expressed are his own.

Related columns:

- Oil traders expect stocks to start falling this month (Reuters, June 10)

- U.S. crude stocks swell as tankers from Saudi Arabia unload (Reuters, May 29)

- Physical oil market tightens as output cuts, economic recovery take hold (Reuters, May 20)

Editing by Jan Harvey

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