NEW YORK/SINGAPORE: An oil glut that has weighed on prices for two years is dissipating, with US stockpiles falling their fastest in over a decade this autumn, crude being whisked ashore from storage at sea, and China running refineries near full bore to replenish diesel supplies. Oil stocks are still well above levels that preceded a 2008 price surge to $147 a barrel, but a massive oil surplus accrued during the global economic downturn is being burned off. That could leave oil prices - now trading near $81 a barrel after they fell from two-year highs above $88 this month - more vulnerable to upward surges. Oil plummeted to $33 as recently as last year as inventories soared, even after the Organization of the Petroleum Exporting Countries cut output targets by 4.2 million barrels a day (bpd) in late 2008, the most in the group's 50-year history. As OPEC keeps a tighter lid on production, world demand is recovering faster than most forecasters, including OPEC itself, had expected. Daily oil demand this year should break a previous record set in 2007, analysts say. “Earlier we heard people say it could take five years to return to record demand levels,” said Jan Stuart, global oil economist at Macquarie in New York. “But we have reached them again and are surpassing them.” Runaway growth in China has helped, with recession-wary US consumers still using less fuel than in 2007. Emerging markets make up about 80 percent of new demand, but stocks are declining in slower-growing OECD countries too. In top oil consumer the United States, total crude and oil product stocks have fallen by 38 million barrels since mid-September, the biggest autumn drop since 1999. US stocks at 1.1 billion barrels in mid-November were 10 percent higher than in the fall of 2008, months after oil prices peaked. But stocks are down 3.3 percent since reaching an all-time high this September, government data shows. Global oil inventories fell 76 million barrels since August and the oil market is in a seasonally-adjusted deficit of 1.3 million barrels a day, Goldman Sachs analysts wrote Monday. Unrelenting Chinese demand has thrust Asian refiners into competition for crude, allowing Saudi Arabia to increase the premiums its charge on eastbound cargoes for next month. Refined oil stocks held by China's two biggest oil companies have fallen in eight consecutive months, and diesel stocks plunged 14 percent last month alone, a Chinese industry official told Reuters Monday. The cost of chartering tankers has risen, even as one trend that was lifting tanker demand has nearly disappeared. During the 2009 glut, major oil traders parked over 100 million barrels of crude in offshore ships to profit from a steep market contango, when oil for delivery further out is priced higher than prompt oil. The contango continues, but crude stocks held at sea fell by as much as 90 percent from record levels last year, said George Los of shipbrokers CR Weber in Connecticut. Refined or “clean” fuel products held at sea globally fell more than 25 percent in the month period through mid-November, shipbroker ICAP said. Stocks have also been shrinking at the onshore oil hub of Cushing, Oklahoma, where US oil futures are delivered. They fell 13 percent from a record 37.9 million barrels in May. Recent French port and refinery strikes cut fuel stocks in Europe, lifting demand for US exports of diesel. US distillate demand is up by double-digits this month versus year-ago levels, and crack spreads are above $14 a barrel.
