The bottom line is that the IEA’s calculations are likely correct, and end markets are merely misreporting due to commercial interests: “In 1997/98 episode, the IEA concluded most of the missing barrels went into non-OECD storage and uncounted OECD inventories . In the current episode, it is also very likely some of the 550 million barrels unaccounted for in 2014/15 have gone into unreported storage outside the OECD.”
Places like China. China’s government is known to have been filling its Strategic Petroleum Reserve. More barrels are likely to have gone into commercial storage in China and in other countries outside the OECD.
The question then is how much longer can all this excess production be stored quietly away from the public’s eye. We already know that Cushing is denying some storage requests, and that as a result the US is storing oil in cargo trains, and exporting it to Europe, in effect making the entire world a series of communication oil vessels. Still, absent some dramatic supply cut in the near term, or just as dramatic rebound in demand, what happens when not just Cushing but the entire world’s inventory capacity is used up?
That is the true fundamental bearish case, one which every daily short squeeze in oil makes increasingly more probable.
This article is brought to you courtesy of Tyler Durden From Zero Hedge.