Record-High Inventories Will Continue Pressuring Markets

Oil prices are giving up yesterday’s gains following news that Texas will be halting its re-opening approach due to an uptick in COVID-19 cases. With the economy already teetering following months of quarantine, forecasters worry that fuel demand may once again turn lower. But regardless of the day-to-day news, a looming challenge for markets is high inventory levels. Today, we’ll take a closer look at where inventories have trended over the past few weeks.

Even if the economy leaps forward and demand surges higher, the overhang of inventories will ensure prices remain low for the foreseeable future. In early June, crude inventories reached a record high level of 538 million barrels (MMbbls), and this past week inventories continued their ascent by setting a new record high of 540 MMbbls.

The previous record came in March 2017, a seasonal peak before summer demand whittled down inventories. In contrast, this year’s peak comes at a time when inventories would typically decline, suggesting it will take even longer to return to normal. Inventories are on track to end June roughly 30 MMbbls above the highest end of the five-year range.

Fuel inventories have followed a path similar to that of crude inventories. Diesel stocks are well above the five-year range, hovering around 174 MMbbls, compared to an average June level closer to 140 MMbbls.

Gasoline inventories are slowing moving towards normal, coming off a record-high level in April above 263 MMbbls. Inventories this week showed a drop to 255 MMbbls. Still, even that lower level is roughly 20 MMbbls above the average June levels.

After posting some meager gains yesterday, crude oil is trading in the red once again. Crude oil is currently trading at $38.23, down 49 cents per barrel.

Fuel prices are also lower, with diesel facing more pressure than gasoline. Diesel prices are currently trading at $1.1338, down 2.2 cents from Thursday’s closing price. Gasoline is trading at $1.1811, down 1.3 cents.