First, OECD oil statistics were most valuable when the OECD held a strong lead in world oil consumption. OECD economies still account for the majority of global oil demand, but their lead is fast narrowing. The U.S. Energy Information Administration estimates that the OECD share of global oil demand fell to 53 percent in 2010, from 62 percent ten years earlier. Long-term projections suggest non-OECD oil consumption will surpass the OECD around 2019 and keep rising, reaching 56 percent (63 million barrels per day) of the world total in 2035. Non-OECD economies already surpass the OECD in total energy use. That faster pace of oil demand growth in non-OECD economies is made all the more meaningful by the fact that market signals, which generally drive oil supply, demand and inventories in the OECD, may be distorted elsewhere by subsidies or other forms of government intervention. Emerging non-OECD economies also vary in energy intensity compared to more mature OECD economies, which may translate into different stockholding requirements. Thus, inventory changes in the United States or Germany may not be a reliable proxy for changes in India, China, or the Middle East.
Even in the OECD, inventory management has evolved in the last decade with the rise of oil and other commodities as an asset class. Until about 2003, increases in prompt oil prices were not typically matched by comparable gains in deferred prices, and thus were generally associated with backwardation - a term structure where prompt oil trades at a premium to oil for delivery in the longer term -- and declining inventories. In contrast, price declines typically led to contango (oil for future delivery trading at a premium to prompt barrels) and stock building. Things changed when an oil rally took prompt prices to record highs from 2004 to mid-2008 while time spreads in NYMEX oil futures continued through most of that period to support increases in U.S. crude oil inventories. U.S. crude oil stocks built steeply after the financial crisis of 2008 and remained elevated, in aggregate terms, during the price rally of the last few months. This new reality seemed to underscore the market's lack of confidence that oil held in storage would be available and sufficient to meet supply shortfalls amid longer-term concerns about fast-rising demand, peak oil and resource scarcity. In the United States, the futures curve remains in contango, while in Europe it has recently shifted into backwardation.
Last but not least, the uneven geographic distribution of crude oil inventories further erodes the value of static, aggregate inventory snapshots as an indicator of oil availability. Not only has the stockholding pattern of the United States, with crude oil inventories still above their seasonal range as of early March, begun to diverge from that of Europe and OECD Asia, where they had already fallen below range before the Libyan disruption, but U.S. stocks themselves are unevenly distributed between Cushing, Oklahoma and the broader U.S. Midwest (where inventories reached an all-time high recently) and the rest of the Nation. That is not because the landlocked Midwest has purposefully been assigned the role of national tank farm. Rather, fast-growing crude oil supplies into Cushing (Figure 3) and the rest of the Midwest from Canada and the Bakken deposit in North Dakota have caused an inventory buildup that, given the lack of pipelines leading out of the Midwest, cannot easily or quickly be tapped by market participants beyond the landlocked region. It is likely such a buildup partly accounts for the persistence of contango in U.S. crude oil futures.