Fuel for Thought
Saudi Arabia's Oil Storage Falls to a Two Year Low as Exports Exceed Production
Aug 15 2016 Comments 0
Saudi Arabia may enjoy status as a global oil giant, but that hasn’t allowed it to escape the worldwide price crash. In a bid to ease the sting, the desert country has let its oil storage inventories fall to a two year low, with analysts maintaining that a short-term supply/demand balance is on the horizon. As the interchange plays out, production slumps will tighten global supplies, chew into remaining surplus and ultimately, push up oil prices. It’s a tactical move from the Saudi energy department, yet whether or not it will trigger long-term benefits is yet to be seen.
Six months of decline
As exports exceed production levels, the Arabian Peninsula nation has seen its crude oil storage count drop consecutively for six months. This represents the longest period of decline since Joint Organisations Data Initiative statistics first began, more than 15 years ago. Since October, Saudi oil inventories have contracted by 38.6 million barrels, which puts its total count at a two year low of 290.9 million barrels.
The new Saudi energy minister Khalid Al-Falih stresses that while supplies are shrinking, the end result will be “a balanced market.” In an interview with Bloomberg TV he confirmed that the production halt is a deliberate move, and that Saudi Arabia has “started inventory drawdowns that will continue for the foreseeable future.”
A global oil production embargo
The Saudis aren’t the only ones facilitating a decline in oil storage, with the USA’s count also dropping from 80-year record highs. Since May, national inventories have fallen by over 10 million barrels. Once again, this figure suggests that in the long-run, the oil market could finally be moving towards a supply/demand equilibrium.
“The drop in Saudi crude stocks signals the rebalancing has started,” Amrita Sen, chief oil analyst at Energy Aspects Ltd explained in a recent interview with Bloomberg.
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