OECD oil inventory levels, a proxy for global oil stock levels, fell sharply in November (the latest month for which there is official data). The 54 million barrel decline was the largest monthly fall since December 2011, and preliminary indications suggest a further 43 million barrel fall for December.
Looking in more detail at the OECD oil inventory levels by geography, the Investec Commodities & Resources Indicator report, finds striking that the large draws in November were across the board in the Americas, Europe and Asia. Despite the surge in US oil production growth, US oil stock levels are lower than last year owing to high refinery utilization and strong product demand and exports. European oil inventories fell by 13 million barrels in November, compared to an average 12 million build for the month, and Asian stock levels also fell further than the seasonal norm.
Oil demand across the developed world significantly exceeded analysts’ expectations in the second half of 2013: year-on-year (yoy) comparisons were strong for both the third and fourth quarters of 2013. Third quarter demand rose from 45.9 million barrels per day (bl/d) to 46.4 million bl/d yoy, while increasing from 46.2 million bl/d to 46.6 million bl/d yoy in the fourth. We had suggested that oil demand for 2013 would come in above consensus, driven by a combination of non-OECD growth and OECD recovery, and so it proved.
Investec is expecting a repeat in 2014: the current fear around emerging market currency weakness distracts from the structural demand growth story which is still on track, and the asset manager expects oil demand growth from the non-OECD region of 1.3-1.5 million bl/d in 2014, following growth of 1.1 million bl/d in 2013.
Strong demand and low spare capacity has tightened global oil inventory levels. Investec’s Commodities & Resources team should not be surprised by Brent crude oil ranging between $100-$115/bl: the only surprising aspect from their vantage point is that many commentators, mainly economists, continue to talk about $80/bl oil.
You can access the last Investec Commodities & Resources Indicator report lin the following link.