By Ron Bousso, Energy Columnist

Hello all Power Up readers!

Following weeks of volatile trading, benchmark oil prices have steadied in the mid-$60s per barrel after the United States and China announced a trade war truce, easing concerns over a global economic meltdown. Still potentially explosive issues loom, from mounting concerns over the $36 trillion U.S. federal government debt to faltering efforts to end the war in Ukraine and reach a nuclear deal with Iran. On top of all this, inventories of oil are rising quickly around the world. More on this below... 

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Inventories of oil stored on land and at sea have risen sharply in recent weeks, in an early warning of weakening market conditions that could put oil prices under pressure for years.

Oil prices have dropped to about $65 a barrel from a high of $82 in January, dragged down by concerns about the potential economic impact of U.S. President Donald Trump's trade war and the surprise decision by OPEC+ to ramp up production.

Yet, until now, no data has shown a marked drop in oil consumption. Refining profit margins are strong and demand grew by nearly one million barrels per day in the first quarter of 2025 compared with a year earlier, according to the International Energy Agency.

Oil storage data, however, suggests conditions have started weakening as inventories build up around the world. While this trend has multiple causes, both economic and geopolitical, it clearly suggests that demand is not keeping up with supply.

In the IEA's latest report published on May 15, it said that total global oil inventories rose for a second consecutive month to 7.7 billion barrels in March. While this is still below the five-year average, the direction of travel appears clear.

The energy watchdog expects oil inventories to rise by an average of 720,000 bpd this year and accelerate to 930,000 bpd next year. Meanwhile, analysis of near real-time satellite data by Kayrros showed oil stock building has accelerated in recent weeks.

Global onshore inventories of crude oil rose by more than 100 million barrels to 3.127 billion barrels between mid-April and mid-May. That's the highest reading for onshore inventories since the height of the COVID-19 pandemic, with the exception of a seasonal peak in July 2023, according to Kayrros analyst Augustin Prate.

Importantly, China, the world's biggest oil importer, saw storage hit a record high of 1.127 billion barrels in May, the Kayrros data showed. This development may in part reflect a concerted effort by the government and refiners to stockpile while oil prices are low. But the global trend of rising onshore inventories remains bearish nonetheless.

Graphics are provided by Reuters.

The increase in oil stored in tankers at sea is another negative signal. Storing oil at sea is more expensive than on land, so when floating storage volumes rise, it means producers and refiners are taking longer to find buyers and discharge cargoes, indicating slowing demand or rising supplies, or both. Under extreme market conditions, traders store oil in tankers when onshore tanks have filled up.

The volume of crude, condensate oil and refined fuels that has been in floating storage on tankers for seven days or longer has risen over the last month by 14% to more than 160 million barrels, the highest in two years, according to data from analytics firm Kpler.

Earlier this week I wrote that the possible lifting of U.S. sanctions on Iran's oil exports could deal a fatal blow to independent Chinese refineries that have thrived by processing Tehran’s discounted crude, while adding to downward pressure on oil prices.

Staying with China, my colleague Clyde Russell took a fascinating deep dive into how to make sense of Chinese economic data that can offer something to both bulls and bears at almost any given moment. He used the example of electricity generation.

And Reuters energy transition columnist Gavin Maguire noted that the global total of electricity generation from solar farms is set to exceed output from nuclear reactors for the first time this summer, marking a milestone in the continuing growth of solar power within global energy systems.

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