Abstract

Petroleum inventories have commercial and strategic implications. In the commercial sphere, the level of petroleum inventories is an indicator of the direction of oil prices in the short term, and a force directly influencing oil prices. As a direct force, the importance of inventories on oil prices has increased since 1978. This increase prices has increased since 1978. This increase is due in the first place to the very large size of the storage sector of the oil industry. The system's capacity makes it possible for large volumes to go into and out of the storage system. The size of the flows has become larger since 1978 as a result of the increased uncertainty about the security of supply (1979-81), the decline in demand (1982-1985), and changes in the relations between exporting country governments and oil companies. In the strategic sphere, the increase in government-owned emergency stocks has changed the balance of power in future efforts by oil exporters to impose embargoes or sharp price increases.

SIZE OF GLOBAL OIL STORAGE SYSTEM

Table 1 presents estimates of the size of the global oil storage system. The system has approximately 11 billion barrels of storage capacity. Consumer and government stocks comprise about 25 percent of this total. The rest is owned and operated by oil companies

Another perspective on the size of the primary sector is provided by estimating primary sector is provided by estimating how many days of refinery processing capacity and of finished petroleum product sales the storage system contains. Table 2 provides these estimates. Note that crude oil storage capacity on a global scale is equivalent to 40 days of refining capacity (10 days of which is in government-owned emergency reserve storage capacity). With respect to finished products, table 2 reveals that storage products, table 2 reveals that storage capacity is equivalent to 60 days of estimated global clean product consumption.

FLOWS INTO AND OUT OF THE GLOBAL OIL STORAGE SYSTEM

Given the global storage capacity estimate of 11 billion barrels, it follows that when the system is half full (5.5 billion barrel), a 10 percent change in the fill level would represent a 500 million barrel change in global supply or demand. If such a change occurred over one year, it would amount to 1.65 million barrels per day out of a total world demand (excluding the Soviet bloc) of 45 million barrels/day. In these circumstances, the global inventory system is a significant "hidden" consumer or producer of oil.

Because supply and demand are seldom perfectly aligned, the storage system is perfectly aligned, the storage system is constantly a "buyer" or "seller" on the margin of the market.

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