LONDON: Global petroleum prices appear reasonable given the level of inventories – to the frustration of the producers who would like them to be significantly higher.

Commercial inventories of crude oil and refined products in the OECD advanced economies were around 2,842 million barrels at the end of May, according to the US Energy Information Administration (EIA). Commercial inventories were just -35 million barrels (-1% or -0.19 standard deviations) below the prior 10-year seasonal average (“Short-term energy outlook,” EIA, June 6).

Given stocks almost exactly in line with the long-term seasonal average, it is unsurprising spot prices and calendar spreads were also close to average.

Front-month Brent futures prices ended May at $73 per barrel, which was in the 40th percentile for all trading days since the start of the century, once adjusted for inflation.

While the real price was a little low, it was not obviously mis priced or significantly below the long-term median price of $81. Brent’s six-month calendar spread was trading in a backwardation of $1.31 per barrel, in the 54th percentile for all trading days since the start of the century.

The spread was slightly high, but again not obviously mispriced, or significantly above the long-term median of a backwardation of 98 cents.

There are no comprehensive estimates for OECD inventories in June as yet. But since the end of May, spot prices have been steady, spreads have weakened slightly, and oil stocks in the United States have been stable, all of which is consistent with a market close to balance. Looking forward, production cuts by Saudi Arabia and its allies in OPEC?, as well as the declining oil and gas rig counts in the United States, are likely to deplete inventories later in 2023 and into 2024. Working in the other direction, however, are high exports from Russia, Venezuela and Iran; rising interest rates and slowing economies in North America and Europe; and a sluggish post-pandemic recovery in China.