LONDON, June 29 (Reuters) - Global petroleum prices appear reasonable given the level of inventories – to the frustration of the producers who would like them to be significantly higher.

Commercial inventories of crude oil and refined products in the OECD advanced economies were around 2,842 million barrels at the end of May, according to the U.S. Energy Information Administration (EIA).

Commercial inventories were just -35 million barrels (-1% or -0.19 standard deviations) below the prior 10-year seasonal average (“Short-term energy outlook”, EIA, June 6).

Given stocks almost exactly in line with the long-term seasonal average, it is unsurprising spot prices and calendar spreads were also close to average.

Front-month Brent futures prices ended May at $73 per barrel, which was in the 40th percentile for all trading days since the start of the century, once adjusted for inflation.

While the real price was a little low, it was not obviously mispriced or significantly below the long-term median price of $81.

Brent’s six-month calendar spread was trading in a backwardation of $1.31 per barrel, in the 54th percentile for all trading days since the start of the century.

The spread was slightly high, but again not obviously mispriced, or significantly above the long-term median of a backwardation of 98 cents.

Chartbook: Global oil stocks and prices

There are no comprehensive estimates for OECD inventories in June as yet.

But since the end of May, spot prices have been steady, spreads have weakened slightly, and oil stocks in the United States have been stable, all of which is consistent with a market close to balance.

Looking forward, production cuts by Saudi Arabia and its allies in OPEC⁺, as well as the declining oil and gas rig counts in the United States, are likely to deplete inventories later in 2023 and into 2024.

Working in the other direction, however, are high exports from Russia, Venezuela and Iran; rising interest rates and slowing economies in North America and Europe; and a sluggish post-pandemic recovery in China.

For all the powerful rhetoric from bulls and bears, including some producers and investors, the market remains in a glass half-full, half-empty condition, depending on your perspective.

Related columns:

- Frustrated oil bulls made to wait for price recovery (June 22, 2023)

- Saudi Arabia’s 'lollipop' has yet to sweeten oil prices (June 6, 2023)

John Kemp is a Reuters market analyst. The views expressed are his own

Editing by Barbara Lewis

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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John Kemp is a senior market analyst specializing in oil and energy systems. Before joining Reuters in 2008, he was a trading analyst at Sempra Commodities, now part of JPMorgan, and an economic analyst at Oxford Analytica. His interests include all aspects of energy technology, history, diplomacy, derivative markets, risk management, policy and transitions.

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