This is a joint post with Matt Mushalik, a retired civil engineer and regional planner based in Sydney, Australia.

Sri Lankan workers walks past 76 million dollar oil tank farm at the southern deep sea port of Hambantota on June 22, 2014. Sri Lanka is hoping its new harbour in the southern tip of the island would emerge a key refuelling centre along the East-West sea route. AFP PHOTO/ Ishara S. KODIKARA (Photo credit should read Ishara S.KODIKARA/AFP/Getty Images)

U.S. crude oil storage is filling up with unaccounted-for oil. There is a lot more oil in storage than the amount that can be accounted for by domestic production and imports.

That’s a big problem since oil prices move up or down based on the U.S. crude oil storage report. Oil stocks in inventory represent surplus supply. Increasing or decreasing inventory levels generally push prices lower or higher because they indicate trends toward longer term over-supply or under-supply.

Why Inventories Matter

Inventory levels have reached record highs since the oil-price collapse in 2014. This surplus supply is a major factor keeping oil prices low.

Current inventories are 45 million barrels higher than 2015 levels, which were more than 100 million barrels higher than the average from 2010 through 2014 (Figure 1). Until the present surplus is reduced by almost 150 million barrels down to the 2010-2014 average, there is little technical possibility of a sustained oil-price recovery.

crude-oil-stocks_5-year-avg-min-max-6-feb-2016

Figure 1. U.S. Crude Inventories Are ~150 Million Barrels Above Average Levels. Source: EIA, Crude Oil Peak and Labyrinth Consulting Services, Inc.

U.S. inventories are critical because stock levels are published every week by the U.S. EIA (Energy Information Administration). The IEA (International Energy Agency) publishes OECD inventories but that data is only published monthly and it measures liquids but not crude oil. It also largely parallels U.S. stock levels that account for almost half of its volume. Inventories for the rest of the world are more speculative.