U.S. Inventory Reductions Probably Not Sustainable

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The decline in U.S. comparative inventories since February is the most significant oil market development since prices collapsed three years ago. It means that U.S. demand has exceeded supply for most of the last 5 months. The main cause is lower net imports, not higher domestic consumption, and that is probably not sustainable.

Comparative inventory (C.I.) is the difference between current storage levels of crude oil plus a select group of refined products, and their 5-year average for the same weekly time period (Figure 1). It is an indicator that normalizes seasonal variations in production, consumption and refinery utilization.

 

C.I. is the key to understanding oil prices yet few analysts use or even discuss it. Instead they try to explain price fluctuations by events in the daily news cycle or by simple year-over-year comparisons…

 

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