While Midwest reserves look high on paper, market access to those supplies is, in practice, severely hampered -- though not totally prevented -- by logistical constraints. Given the relative difficulty in deploying surplus Midwest inventories to make up for shortfalls elsewhere, aggregate U.S. and OECD inventory figures may be somewhat misleading. Once hard-to-tap Cushing stocks are taken out of the picture, both U.S. and OECD crude oil inventories look much tighter (Figure 4). Strip out the entire U.S. Midwest, and OECD crude oil inventories, far from looking historically high, look significantly below the average of the last five years (Figure 5).
While it is not unprecedented for inventories to be more concentrated in some areas than others, such regional imbalances do not usually carry the same market implications as the current Midwest stock bulge. OECD European crude oil stocks are a case in point. Labor disruptions to refinery operations and crude oil imports last fall apparently helped trigger steep declines in French crude oil stocks in the fourth quarter of last year. That alone sufficed to pull down the entire OECD Europe inventory aggregate, even though other countries in Europe held more ample stocks. Stripping out French stocks, the regional picture looks more comfortable. In that case, however, aggregate figures provide useful market information, as arbitrage activity would be expected to replenish French stocks over time, and extra flows into French storage likely would come at the expense of supply headed elsewhere. The same cannot be said of the U.S. imbalance, where bottlenecks currently complicate such rebalancing.
Could demand instead be met by inventories held in other regions? JODI data suggest a significant increase in Saudi crude oil stocks in the last two years (Figure 6). Markets typically pay closer attention to Saudi field production and exports than to Saudi storage holdings. Yet reported Saudi stock builds shown in JODI data seem consistent with recent Saudi statements detailing Riyadh's efforts to calm the oil markets in the wake of the Libyan uprising, which pointedly mention the deployment of inventory crude oil an effective way to meet supply shortfalls.