UNDERSTANDING OIL GLUTS
There is much attention given to the frequent oil gluts creating the perception that we are swimming in oil.
While there are large pools of oil remaining, particularly in Russia and Saudi Arabia, the reality is that we are burning 6 barrels for every barrel we find. So we are pumping the remaining pools of oil down rather quickly given we burn nearly 100M barrels of oil per DAY.
What causes a glut of oil?
These gluts tend to occur when the price of oil is falling. The producers have bills to pay so they need to pump more volume out of the ground to make up for the lower price of oil.
Of course this creates a race to the bottom as the major suppliers battle to sell ever increasing volumes of oil but fortunately they generally find common ground and agree to control the amounts of oil they bring to market otherwise the price of oil would be in single digits.
Essentially this does not mean their reserves have increased rather it means that they are pumping their reserves faster thereby depleting them more rapidly.
If you had one large tank of petrol remaining and you knew there was no chance of refilling it, would you go on long, high-speed joy rides? Of would you use the remaining petrol for essential trips only?
The vast majority of air travel involves joy rides to holiday destinations. And that has mostly stopped. Business travel has been slashed as well with most meetings now being held using video conferencing software.
An added benefit is that the skies are clearer and bluer.