This is What’s Wrong with US Oil

The chart shows what a truly relentless glut looks like

It usually comes in small-sounding and unlarming increments. But add up enough of these increments, and pretty soon you have some real numbers.

Today was another one of those, and it hit a huge milestone. The Energy Information Administration released its new set of weekly petroleum data, including inventories. During the week ending August 19, US crude oil inventories rose by 2.5 million barrels to 523.6 million barrels.

Oil bulls weren’t tickled: West Texas Intermediate fell 2.8%, settling at $45.77.

This rise was, once again, “unexpected,” as the media put it. Analysts had expected a drop of 0.5 million barrels. This is after all the time of the year – driving season – when oil stocks are supposed to drop. The data “revived worries about the supply glut,” according to the media.

Alas, the supply glut has been getting relentlessly worse and worse and worse for two years. It has just shifted around some, with refiners trying to wind their way through it the best they can.

Soothsayers out there have been prophesying time and again, for over a year, that very soon, in fact next week, the supply glut will start to unwind; that production in the US is already coming down sharply, that demand is up, or whatever….

In the end, a glut comes down to whether inventories are rising, particularly during a time of the year when they’re supposed to be falling (glut gets worse), or whether they’re falling (glut stabilizes or abates).

It’s not just crude oil, but also the products that crude oil gets refined into for eventual use. And these stocks of petroleum products have been a doozie, particularly gasoline.

Gasoline stocks were essentially unchanged for the week, at 232.7 million barrels, a record for this time of the year, and up 8.5% from the already elevated inventory levels last year. This chart from the EIA shows the magnitude of the gasoline glut:


Distillate fuels rose by 200,000 barrels to 153.3 million barrels. And “all other oils” jumped by a total of 3.9 million barrels to 490.6 million barrels.

So total petroleum products stocks rose by 6.6 million barrels during the week, or 0.5%. Once again, this small-ish number, but over the period of the oil bust, total petroleum products stocks have soared by 30% and now exceed for the first time ever another huge milestone: 1.4 billion barrels.

This chart shows what a truly relentless glut looks like:


Note how, right after the Financial Crisis, petroleum products stocks began to rise and remained elevated over the years even as demand in the US was still languishing, hampered in part by the $100 price tag per barrel of oil. It was the perfect setup for the oil bust, when prices began to collapse in the summer of 2014.

It’s not often that a glut forms a line in a chart where inventories shoot skyward for two years straight. Normally, something happens along the way: prices crash, companies get in trouble, the money dries up, and production plunges. At the same time, demand, stimulated by the crashed prices, picks up. And gradually the glut unwinds.

Prices have crashed, companies have gotten in trouble, and many smaller ones have gone bankrupt. The industry has shed nearly 200,000 employees in the US alone. And yet, the price of oil re-surged, starting in mid-February, nearly doubling within a few months. Stock prices of oil & gas companies have re-surged too, including those of Chesapeake and others that were teetering, and they’ve been able to use these higher stock prices to bamboozle investors into giving them more money, and swap some of their debts for equity. So new money has been flowing back into the industry, and over-indebted companies near the brink are pumping all the oil they can to meet their debt payments.

And the glut just hasn’t started to abate yet.

OPEC, Saudi Arabia on its own, and whatever energy minister out there can talk their mouth ragged to manipulate markets into their direction and to accomplish whatever goals they might have. But this chart above is worth more than a thousand of their words, and a reminder that the glut is far from over.

It’s not like the global economy is firing on all cylinders. Read… World Trade Falls for Second Quarter in a Row

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  38 comments for “This is What’s Wrong with US Oil

  1. EVENT HORIZON says:

    This last Saturday, gas at my local RacTrack was $1.93/gallon

    This last Monday, driving to work, the gas at this SAME RacTrack, just 48 hours latter, was $2.15/gallon.

    How did that happen?

    • Wolf Richter says:

      They raised prices because they could!

      Once they start losing business, they’ll lower prices. If they don’t lose business (if you don’t go somewhere else to buy your gas), they’ll raise prices again…. until they lose business.

      Hey, it’s how a market works. But people who get gas there need to play their role and shop for cheaper gas somewhere else.

      And if all gas stations raise their prices together, well, you’re experiencing inflation first hand.

    • robt says:

      The bump from 40 to 50 dollar oil. Same thing happened in Toronto. From about 4.45 to 4.65/imperial gallon. The higher is price equivalent to 2.98 USG/USD. (We have more taxes up here to help cover our ‘free’ healthcare).
      Takes a few weeks to make it through the pipeline.

  2. Petunia says:

    I see improvements in technology helping to cut the demand for energy in general. When you add in the trend in downsizing you should see a drop in demand. We currently live in a smaller house with a tankless water heater, it works great, and is a lot cheaper. We also invested in led bulbs which are more efficient as well. Those two things are saving us some money, we can actually see the difference in the bills.

  3. Mary says:

    Driving season is not the time of year when crude inventories are supposed to fall. The refiners buy their crude stocks before driving season to make the gasoline. See the EIA’s crude oil stocks chart here:

    Scroll to second chart. Inventories peak in April-ish and decline into Sept. This is reflected in the five year seasonal chart for crude:

    showing that prices typically fall from Jun through Aug. I don’t know why people keep saying that prices of crude go up during driving season. Doesn’t make sense unless…

    In this era of PR, everybody (FED, ECB, OPEC) thinks that can rig the markets with their big mouths. Sadly, they seem to be right–at least for a while.

    • Wolf Richter says:

      The chart you linked clearly says that inventories have been falling during driving season, as they always do. Hence, they’re SUPPOSED to fall during driving season, from a markets point of view. And they did fall this year too. just enough enough.

      • DV says:

        You should also add a chart showing inventories in Saudi Arabia. And those fell by over 100 mln barrels. So it looks like most of that “glut” oil was simply transferred from one storage to another. Not that it does not matter, but production-wise glut does not seem to be as big as it appears from storage numbers.

    • Mike Farrell says:

      Thanks for thinking before you write. I think that in November, 2016 we will see OPEC in stunning free fall and the USA making profits on $55 oil. mike

  4. William Charles says:

    “It’s not like the global economy is firing on all cylinders…”
    Nope, but it has plenty of oil and gas to continue firing, problem is worldwide government debt does not.

  5. michael says:

    The oil producers are going to pump like there is no tomorrow as the massive debt and competition drive them. Despite the never ending nonsense of reestablishing quotas to control supply. Even if some were to agree, others will fill the void.

  6. Steve M says:

    How close does the 1.4 billion barrels of inventory come to total US capacity?

    Perhaps with a little retrofitting, the oil glut can help solve the Houston office space glut that you’ve previously reported.

    • polecat says:

      So what happens when the glut becomes a dearth ??……..because it’s been a few million years or so when the last great die-off happened..turning all that ancient corpulent goo into the modern stuff of !

  7. Thomas Malthus says:

    While on the topic of energy …. here’s an interesting comment:

    Warren Buffet said:

    “I will do anything that is basically covered by the law to reduce Berkshire’s tax rate. For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”

    And no – that is not a joke — he actually said that….

    Taken from:

    True costs of wind electricity

    • Wolf Richter says:

      Nuclear power doesn’t EVEN make sense with all kinds of taxpayer subsidies. And then when the plants get decommissioned billions more in costs are spread over taxpayers and ratepayers. See the San Ofre Nuke scandal in California, going on right now. Everyone but the utility pays. Many billions. For decades.

      Expressways are built with taxpayer funds too. So are a million other things. Buffet is into many of them, in one way or another. He loves getting money from the taxpayer.

      • Thomas Malthus says:

        None of this stuff makes sense…. solar also would not exist without the hundreds of billions of subsidies shoveled into the maw…. Tesla likewise…

        Here’s my take :

        The High Priests who run the world understand that oil is a finite substance.

        The average person would also be aware of this (although there are some who believe there is an oil factory in the centre of the earth pumping out large volumes of new oil every day…)

        The last thing the HPs would want is for the masses to get nervous about this inconvenient truth….

        Nervous people are prone to despair…. and despondent people are pessimistic — and pessimistic people tend to be less willing to spend and support growth ….

        So how to you maintain faith that there is a viable future — not so much for them — but for their kids and grand kids….

        Well of course you give them a Hopium Pipe to puff on ….

        You get your MSM minions to spin stories of a solar and wind future… a Tesla-powered future….. you even tell them on a regular basis that we have found a new planet that can support life!

        So that when we burn out this planet – we can move on :)

        I actually heard that on Pravda New Zealand otherwise known as Radio NZ when I was driving today.

        All of these ideas are equally absurd…. they are never going to happen….

        The HP’s know this ….

        To get the masses to buy in and get a high off the Pipe…. you have to light it…

        So you allocate some cash to the story to make it all feel REEEL…… you offer a few hundred billion here… a few hundred billion there …

        What’s a few hundred billion in mis-allocated cash ….. the ends justify the means…..

        It keeps the economy humming along …. it keeps the world from epic despair….

        If you consider this it is not that much different than the God Delusion …

        The masses cannot handle dark thoughts — they will always seek out ‘solutions’

      • CrazyCooter says:

        Nuke energy is like anything else the last 30 years or 40 years or so – it is a goat rope – there never was a real competition.. Everything is about screwing someone else – transfer payments – as opposed to providing a legitimate, profitable service/product.

        The MIC killed thorium back in the 60s, because it wasn’t weaponizable – the private nuke energy industry was a HUGE subsidy to the MIC for plutonium and such. If the US went the logical route, thorium, the MIC would have to eat the FULL cost of weaponizing uranium isotopes. It doesn’t pencil out well at all.

        For our species to survive the next 100 years, with anything remotely like present day populations and living standards, will REQUIRE thorium sources of energy because the classic sources (bio-mass, uranium, fossil fuel) will just exhaust.

        I get the renewable aspect, I am just saying it is ~ 1% of total energy production globally – so get over it.

        Folks can crow all they want – just how it is. Personally, I think this has been known for a long, long time and insiders will game their position as much as possible along the way (i.e. screw you). I don’t even pay attention any more, to be honest, but one day I will be right.

        If I am wrong, go long plow mules.

        Sorry for the rant, but this is going to be a very real issue in 20 years or so.



        • nhz says:

          The world can run for 100% on renewable energy within 50 years or so if we want. We have done that for 99,9% of our history and we can do it again despite a much bigger population, thanks to technological innovation. We just have to ditch the wasteful US-inspired lifestyle where more and bigger is always better and energy use is extrapolated to increase indefinitely. What if we shrink energy usage by 5% every year by rewarding people for saving energy, instead of rewarding them for using more of it? I have NO doubt it can be done, it is just that the people in power would find if difficult to profit from such a future because it would be the ‘small is beautiful’ kind where energy production is primarily local and big companies and big bully nations have far less influence and pricing power than they have now.

        • Wolf Richter says:

          In 2015, in the US, renewables were 13% of total electricity production: 6% hydro and 7% wind, solar, biomass, etc. That’s only from “utility-scale” power plants and does not include rooftop solar, etc.

          Rooftop solar is expensive because it’s on such a small scale. Economies of scale are very important. But utility-scale renewables are a growing factor in the US power mix.

        • nhz says:

          rooftop solar is relatively expensive indeed, but over here in Europe utility power is so expensive that the investment in panels pays for itself in 5-10 years. Subsidy hardly makes a difference for profitability nowadays, many people now buy panels without subsidy because the subsidy applications are a bureaucratic nightmare (and they often run out a few months into the year, in which case you get nothing anyway).

          The main problem for both wind and solar is power storage or making users (especially the big ones) match their power use with availability. For rooftop solar another issue is the many older (and all different) houses in Europe that makes installation of panels relatively expensive. There are promising solutions for both issues, but we are not there yet.

          Given the constant increases in energy bills (despite lower usage every year, and much lower oil prices lately, my bills keep going up) it can’t be long before many consumers become their own energy company.

        • Thomas Malthus says:

          Solar is outrageously expensive — without subsidies it would pretty much not exist….

          Factor in the batteries are at best going to last 12 years (a solar sales guy told me that this was a best case scenario)….

          And you’d have to be nuts to install such a system. Or have money to burn. Or have no other power options

        • Tim says:

          some data sources.

          you can see their pie charts for hydro, wood, etc.

          natural gas, petroleum, coal total ~81%.

      • Thomas Malthus says:

        Uncle Warren … is what is know as a Crony

      • Meme Imfurst says:

        Why Wolf, I ‘m not so sure you have cozy feelings for the man from Omaha….”He loves getting money from the taxpayer.”. Such words of truth while the media treats him like a king.

        Look into his ownership of Wells Fargo….and the private prisons they have a majority stake in and the cruel and inhuman treatment practiced there…like no food on weekends unless you buy it, you have to buy almost everything, one roll of TP, the list it worst than any country we openly criticize.

        The more you look into what he does and controls, the more you realize he has friends.

        • nhz says:

          The most profitable investment Uncle Warren ever did was in political connections. He loves trotting around as a charity champion, while in reality he is one of the biggest financial leeches on the planet. TBTFW, certainly in the political sense.

      • Paul Wick says:

        The finishing of FOAK engineering for the Westinghouse AP1000 plants in China and the US are going to result in massive price reductions for new-build reactors; and the new fuel from Lightbridge promises a 30% power uprate from new plants at the same capital cost. After this, molten salt reactors are going to come online in the next 10 years that pencil out at a lower capital cost than coal plants; and with negligible fuel costs (compared to 100 rail cars a day rolling into a typical coal plant), will sell electricity at $.02/kWh. Of course, coal, oil and gas interests along with their useful idiots in Green anti-nuclear organizations, will strive to drive the cost up, as they have since the 1970s. But China, Russia and the rest of the world won’t put up with this. Capitalist competition will force the US and much of Europe, to dismount the anti-nuclear beast, and join the 21st Century. It’s coal or nuclear, and coal is leading to ecological catastrophe. Take your pick.

        • nhz says:

          So … you are betting that the nuclear engineers will for one time be right with their predictions about performance, reliability, cost etc.? Good luck with that after 70 years of blatant lying and delusional predictions …

          My government just started a new campaign because “citizens are insufficiently informed about the risks of a disaster at a nuclear power plant” (I’m near a big nuclear power plant and there are several others within explosion distance just across the border).

          Is government waking up, really? Their message is this: make sure you know where you can get your Iodine tablets if there is a meltdown or something. Of course if you are over 40 don’t bother, we have written you off and there is no need to do anything. And the main message: people think they might die from a nuclear power station failure. Wrong, life goes on as usual just like in Chernobyl or Fukushima. Just ignore the huge increase in cancer cases, the pollution that lasts for thousands of years and everything else and the nuclear future will be as bright as its engineers dream.

          What a great industry if you can keep all the “profits” yourself and leverage all the risks and costs on society ;-(

    • nhz says:

      This is a ridiculous argument that ignores reality.

      Inform yourself about the real cost of wind energy, e.g. the new 3000 MW of wind farms that is being build near the Dutch coast, and that will be a lot cheaper than nuclear – despite the HUGE subsidies for nuclear power, and the fact that most of their cost like 100.000 year storage, extreme security measures and decommissioning are all paid by the taxpayers. Nuclear is one big scam and its only special ‘advantage’ is to enable nuclear warfare for some countries that are above international law.

      The new Dutch wind farms get a bit of subsidy, but because the cost was far lower than initially estimated it isn’t much. The total cost to the population of one nuclear power station will be a hundred times higher, at least – and that is assuming that nothing bad happens in 100.000 years which is a silly assumption given the experience with Chernobyl, Fukushima and many other near-disasters.

  8. Walter says:

    Great article!
    I like how the U.S. holds record amounts of oil + gas inventories not affecting the oil price. Maybe an inflection point will occur when inventories start falling.

    Meanwhile, China been exporting oil to the rest of the world with July diesel and gasoline exports soared 181.8 percent and 145.2 percent, respectively, from the same month last year.

    So, is China strategy is to refine crude oil imports and re-exporting it?

  9. RD Blakeslee says:

    When a stored resource suddenly becomes valuable (e.g., because of sudden onset of war – there are many other possibilities), ordinary flow analysis of the stored commodity’s production and use are obviated.

    I tend to think in those terms, hence I store 400 gallons of diesel fuel for use in an emergency, for my diesel truck and household backup generator.

    Distributed household power (solar, mostly) would be a valuable adjunct to grid supply in such times and I look forward to its growth.

  10. Ptb says:

    The cure for high prices is high prices. The oil industry did it to themselves. Just another cheap money bubble that’s now imploding. But with the added bonus of competition from alternatives and higher levels of usage efficiency.

  11. wratfink says:

    Is it possible that the glut is actually caused solely by the US fracking “experiment”?

    Are inventories of Saudi oil going down while inventories of US liquids going up?

    I think it is probable that all this Bakken tight oil is not of the type needed by the world. It is mostly condensate and short chain molecules and not really suitable for diesel or jet fuel. It is plastic feedstock and gasoline. The world runs on long chain molecular crude like Middle Eastern and West African crude that makes diesel and jet fuel. The US continues to import and refine and use this oil.

    The glut of Bakken “lighter fluid” will continue to build as the Williston Basin slowly disappears into tales of boom and bust told by old timers.

    • Wolf Richter says:

      In addition to the reasons you mention, the US has to import oil for other reasons. For example, there are no oil pipelines across the Rockies into California (though there are some oil trains). The state produces some of its own oil, exports some refined products, and imports oil by sea (some of it from Alaska, the rest from around the world).

  12. HR says:

    How much condensate is in the storage tanks Wolf? Check the API gravity on much of the oil in storage.

  13. ERG says:

    The price is still too high for a market with a supply glut and not enough demand.

    IMO, that’s called manipulation.

    • d says:


      Definitely just as it was very heavily manipulated over 60 by fear factors (Iran ) and heavily excessively high oil company costs ( Exorbitant Bonuses and Salary’s).

      Keeping it over 20 to prevent a large number of bankruptcy’s ( which would have further negative effects on the western/global economy) is a lot more acceptable than forcing it over 50 to line oil company and Iranian pockets.

      So that Iran can fund more terror against the non Shiite world and in particular, the world’s Israeli’s, and Jew’s.

  14. Ev says:

    Refiners are largely responsible for setting the price at the pump. Sometimes the same refinery supplies multiple brands of retailers within the same market. Companies like Exxon make up for lost profits from lower crude by making more from the downstream operations like refining. How else are they going to maintain the dividend? Borrow? Not likely.

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