I have been in the weeds of oil market modeling for over 10 years. I thought it was a stupid skill to learn. What the fuck do you gain by learning how to model oil market balances?

Well, it seems like it’s coming in a bit handy now.

To the uninformed observer, the largest oil market deficits in history have only ever reached ~3 million b/d.

Here’s a fun fact: Q4 2018 balances was widely considered to be one of the tightest quarters in history. What was the deficit? 1.6 million b/d.

Yes, 1.6 million b/d. Oil markets have never had a deficit larger than 3 million b/d.

In 2022? Markets started pricing in a structural 2 million b/d deficit, oil spiked, and equity markets sold off.

Now? People are talking about sustained 5 million b/d deficit as somehow being manageable?

No. That’s not how the oil market works. Because oil is traded on the margin, that last barrel would push prices to the extreme. We are eating into onshore oil inventories now, the market is still asleep.