You can talk about shale oil and rig counts all you want but you must also talk about oil in storage or the lack thereof. My buddy Matt Smith, at Clipper Data, points out that home to one of the world’s largest crude storage facilities, in Saldanha Bay in South Africa, has seen its supply almost emptied out. Smith points out that various trading houses were selling crude from the storage hub after the market had flipped into backwardation (when near-term prices are higher than those further into the future), dis-incentivizing crude storage – be it onshore or offshore (aka floating storage).

Smith cites an article from the Financial Times that reported two weeks ago that Saldanha Bay storage had been emptied, according to Vitol’s Chris Bake, quoting him saying “stockpiles at important oil storage hubs, such as Saldanha Bay in South Africa, have been “emptied” and crude stored on tankers at sea, such as off the coast of Iran and Singapore, is “all gone.”

Smith says that, while we concur that floating storage off the coast of Iran has been drawn down (something that was almost complete by April of last year), the reports of the demise of floating storage off Singapore appear greatly exaggerated. Although it has more than halved since mid-last year, we still see around 30 million barrels of crude waiting offshore in the region.

Still the big drop in supply there and over the last few months in the U.S. should raise concerns about how well future oil demand will be supplied. We keep hearing that shale oil will be the savior and bring OPEC to its knees, but the actual supply data is telling a much different story.

Global oil demand obviously is much stronger than people think it is or maybe shale oil production is not as prolific as the International Energy Agency (IEA) keeps telling us it is.  Of course, the IEA represents the consuming nations. At the CERA energy week, the IEA says that rising oil production from the U.S. alone will need to cover 80 per cent of the world’s demand growth over the next two years. They say that the U.S. production will grow by 3.7m barrels per day (bpd) over the next five years. If they are wrong and the U.S. misses that growth target it is likely the globe will be woefully undersupplied.  The IEA acknowledged that it is a bit concerned about underinvestment, as well they should be.