According to the Energy Intelligence Group’s 1997 report, "How Much Oil
Inventory is Enough?," there are 7-8 billion barrels of oil tied up worldwide in
industry and government stocks (inventories) at any given time. (The
estimate excludes consumer stocks.) Why so much? Mostly, because
stocks are needed to keep the global supply system operating. They can be
thought of as a huge pipeline stretching from the wellhead to the consumer,
filling the tankers, the pipelines, the railcars, and the road tankers, and
linking all the markets and all the segments of the industry together.
They are thus the key to the oil industry’s proven ability to deliver the right
product to the right location at the right time.
Only around 10 percent of this vast stockpile is typically available to
the industry to use as and when it pleases. Although minor in volume
terms, these stocks -- sometimes described as "discretionary" -- can affect the
industry in major ways, because this subset of total stocks indicates whether
markets have too little, too much, or just the right amount of oil.
Thus, when stocks are low in
a particular market, prices there are likely to be relatively high,
encouraging extra supply or reducing demand. Vice versa, when a region's
stocks are high, prices are likely to be relatively low in that market.
For example, if distillate is in short supply on the U.S. East Coast so that
distillate stocks there are low, then the price for East Coast distillate rises
relative to distillate prices in other markets, like
It is hard for the industry to follow global stocks as closely as it
would like, because the data have large gaps. The
The
Most of the world’s storage capacity is owned by the companies that
produce, refine, or market the oil. There is also a small but important
proportion that is owned by independent operators, who make their living by
renting it to third parties. These facilities are located predominantly at the
world’s main trading hubs, like