A 41-day buffer in U.S. commercial inventories is the highest it’s ever been.
The sharp decline in lower U.S. refinery runs, practically the only source of oil demand, has caused oil inventories across the U.S. to swell. Commercial crude inventories were recently sufficient to supply 41 days of U.S. refinery demand. This is in contrast to the last 10 years where the average days of cover was about 25.4 days. In other words, there is so much crude oil in domestic stocks that refineries could run for nearly double the amount of days than what is historically “normal”.
As the chart shows below, when days of supply (also called “days of cover”) exceeds the average of ~25, the U.S. oil price benchmark typically comes under pressure. The more days of crude supply means a looser market. The record amount of supplies on hand have kept WTI in the $20 and $30’s.
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, according to the EIA. The calculation excludes government-held stocks such as the U.S. 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.