This Week’s Increase in Oil Inventories One of the Largest Ever

Posted by Michael Hoven on January 15, 2010 at 11:47 am

Whether in floating storage or on land, oil supplies grew near record levels this week. (image: made-in-china.com)

Inventories of oil—whether crude oil, distillates (which include heating oil and diesel), or gasoline—have been high throughout the heating season. Just before Thanksgiving we reported that “heating oil inventories…[were] at staggering levels,” their highest point since Christmas 1998, and in early January we looked at EIA data and extended that record to 26 years. And heating oil inventories have stayed high, despite refining cutbacks.

Yet this Wednesday the EIA reported that oil inventories had gotten bigger still during the previous week—even with the cold weather. Izabella Kaminska of Alphaville found it “unbelievable” that inventories could rise so much during a week of cold weather, especially when inventories were high to begin with. Between crude oil and all categories of refined products, oil inventories climbed by 8.9 million barrels last week. As oil analyst Dennis Gartman pointed out, that amounts to one of the largest weekly increases ever. Additionally, the US Strategic Petroleum Reserve is now full.

Will all this supply bring down heating oil prices? Crude and heating oil prices have declined this week, but those prices are determined by many factors besides supply and demand; fresh economic data or geopolitical tension could reverse oil’s downward trend. Any upcoming price increase would be hard to attribute to growing demand, though. This week’s inventory numbers show that there is enough oil supply to cover another cold snap or an uptick in the pace of economic recovery.