by Bill O’Grady

The Market

Oil prices have fallen steadily over the past year, reaching a new low early in the first quarter just below $30 per barrel.  Since mid-February, they have staged an impressive recovery.

Oil Prices and Inventories

This rally has occurred despite historic levels of U.S. commercial crude oil inventories.  The chart below shows the level of inventories dating back to 1920.  The current level of stockpiles is only about 12 mb below the all-time high set in October 1929.  The DOE estimates that U.S. working crude oil storage is 502 mb.  With current inventory levels at 533 mb, we are well above the working storage level.  Although there were some concerns over a price collapse if storage costs become excessive, thus far, the industry has been able to manage these high inventory levels without serious trouble.  Additionally, with the inventory build season nearing an end, the odds of breaking the recent lows are growing less likely.

View the complete PDF