Crude prices hit an all-time low in 2020 due to oversupply and low demand. Crude prices have stabilized at around $40 a barrel but this article explores the current supply in the American market and how that will impact prices in the future.

Crude storage usually peaks at the beginning of the year when refiners perform routine maintenance. At this point, supply decreases as more crude is refined into gasoline for the summer driving season. Crude storage usually hits the lowest point in the year right after the summer driving season and will begin to rise in the winter months as demand decreases.

The graph below is the number of barrels of crude and gasoline storage in 2018. This graph represents a typical year and highlights the cyclical nature of the industry. The graph shows that crude storage, in green, and gasoline storage, in yellow, is high at the beginning of the year. Crude and gasoline storage decreases as more gasoline is needed in the summer months.

Over the past several months, crude and gasoline storage peaked in the summer due to exports from Saudi Arabia and decreased demand from Covid 19. This led to a historic drop in prices as storage capacity hit over 100% and things like above-ground swimming pools were being bought just to store oil in as capacity was at a maximum. Supply has been declining over the past months an OPEC+ deal has led to a stabilization of prices, the Phase 1 deal with China has encouraged economists and American producers have curtailed production.

Chinese commodity traders have stepped up purchases of U.S. commodities and have agreed to buy 22 million barrels by the end of the year. These purchases are likely to continue despite the recent acrimony between the U.S. and China. However, I believe prices will remain subdued until at least the middle of 2021 due to less consumption of gasoline and jet fuel in the winter, the impacts of Covid 19 on gasoline demand and the economy, and OPEC+ easing supply cuts.