OECD Crude Oil Inventories Are Rising Rapidly
A Sharp Decline May Occur by the End of This Year
Since Russia's invasion of Ukraine in 2022, international oil prices (based on WTI) have fluctuated above $100 per barrel but have shown a long-term downward trend. Due to increased production by oil-producing countries, there are now forecasts that oil prices could fall into the $40 range by 2026.
On the 22nd, LS Securities released a report titled "Checking the Possibility of Oil Prices Realizing the $40 Range," analyzing that oil prices are inevitably set to decline in the future because excessive crude oil supply from major oil-exporting countries is causing a rapid buildup of inventories in importing countries.
OECD Crude Oil Inventories Are Rising Rapidly
In its August Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) sharply revised its oil price forecasts, lowering the 2025 forecast from $65.3 to $63.6 per barrel, and the 2026 forecast from $54.8 to $47.8 per barrel. Considering that the EIA is typically conservative in adjusting its forecasts, this is a highly unusual move.
The main reason for the EIA's sharp downward revision is the supply expansion by OPEC+. OPEC+ is a coalition that includes the 11 members of the Organization of the Petroleum Exporting Countries (OPEC) plus 12 non-OPEC countries such as Russia, Mexico, and Kazakhstan. Recently, the EIA raised its supply surplus forecast from 400,000 barrels per day (bpd) in May to 1.6 million bpd in August. This means that 1.6 million barrels of crude oil are being added to inventories each day. In fact, OECD inventories increased rapidly from 2.73 billion barrels in February to 2.8 billion barrels at the end of July.
If the EIA's projections hold, with a supply surplus of 1.6 million bpd in 2025 and 1.45 million bpd in 2026, about 580 million barrels of oil will be added to inventories annually. Given that OECD oil inventories account for roughly 40% of global inventories, the current OECD stockpile of 2.8 billion barrels is expected to rise to about 3 billion barrels in 10 months. This level is about 7% higher than the five-year average for OECD inventories. Considering that long-term WTI futures have recently fluctuated between $55 and $65, the near-term WTI price could fall as low as $50 per barrel.
Sharp Decline Possible by Year-End
In its August outlook, the EIA projected the oil price bottom at $45 per barrel in April next year, with oil inventories expected to rise to 3.06 billion barrels by November next year. LS Securities analyst Hong Sungki commented, "Although the EIA's oil price decline forecast may seem somewhat excessive, it is necessary to prepare for a drop to the $50 range."
In addition to the EIA, several other institutions are also focusing on supply expansion factors concentrated in the fourth quarter of this year. Unlike in the past, when most supply increases came from U.S. shale or OPEC, the fourth quarter of this year will see significant production increases from Brazil, Kazakhstan, and Guyana. Analyst Hong Sungki noted, "Concerns about an economic recession caused by U.S. tariff issues have somewhat eased, but if recession fears resurface, the degree of oversupply could reach levels seen in 2015-2016." He added, "While our base scenario anticipates oil prices falling to the $50 range in the second quarter of next year, there is also a possibility of a sharp decline between the fourth quarter of this year and the first quarter of next year."
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