Falling Global Oil Inventories: Why the Bullish Narrative is Overhyped

Source: Tank News International, 2020.

Nothing sends a chill through oil market veterans quite like a chart showing a dramatic plunge in global oil inventories — especially with the Hormuz crisis showing no signs of resolution and peak summer driving season just around the corner. That very chart has gone viral on social media over the past week, sparking a wave of bullish euphoria. Some analysts are now boldly calling for Brent to surge more than 50% to $150 per barrel.

Add in China’s historic collapse in oil imports and the expected sharp draw in Chinese inventories, and you have what looks like the perfect bull-case scenario.

Here’s the problem: the chart is wrong and misleading — and the decline in Chinese oil inventories is actually bearish.

Shocked yet?

Here’s the bigger picture: What matters to the market right now is not the headline loss of 11 mb/d of production or the difference between supply before and after the crisis. What truly counts is the balance between current supply and demand. That gap has narrowed. Demand has fallen while the overall supply picture has actually improved: rerouting via Saudi and Emirati pipelines and withdrawals from the SPRs.

Mixing Apples and Oranges