With lower US refinery runs and increases in domestic crude oil production, US commercial crude oil inventories at the end of February provided the most days of supply since the mid-1980s. Commercial crude inventories were sufficient to supply 29 days of US refinery demand, based on expected refinery runs in March.
The number of days of supply is calculated by dividing the commercial crude oil inventory level at the end of the month by the forecast crude oil refinery runs in the following month. This calculation excludes government-held inventories such as the US Strategic Petroleum Reserve. The days-of-supply calculation is an indicator of how loose or tight oil markets are by showing the number of days current commercial inventories will last given the future consumption rate at refineries. Refinery runs are the amount of crude oil that refineries process and are used as a proxy to measure the consumption rate.
As explained in This Week in Petroleum, commercial crude oil inventories across all Organization for Economic Cooperation and Development (OECD) countries are also high, but to a lesser extent than US inventories considered alone. OECD crude oil inventories in January were sufficient to supply almost 28 days of OECD crude oil demand. However, unlike in the US, OECD inventories have exceeded 28 days of supply in several months over the previous two years.
The recent increase in US crude oil inventories in January and February, compared with the more typical OECD days-of-supply, helps to explain why the February increase of US crude oil prices, such as the benchmark West Texas Intermediate (WTI), was smaller compared to the February price increase of the international benchmark Brent. The Brent-WTI price spread settled at US$7.53/bbl on 10 March 2015, an increase from the start of the year, when these prices were nearly equal. Other factors that have led to a wider Brent-WTI spread are planned and unplanned refinery maintenance in the US and increased refinery use in Europe.
Image from EIA