Like the guest who overstays his welcome, the ongoing, seemingly interminable overhang of crude oil and product inventories is increasingly frustrating energy investors. Delaying the departure is inventories’ evolving role as a “swing supplier.”

Jamie Webster, a fellow with the Center on Global Energy Policy, cited “the changing role of storage” in an address in August to the Rocky Mountain Energy Summit organized by the Colorado Oil & Gas Association. While some have suggested that U.S. unconventional players are the new swing supplier, replacing Saudi Arabia, “my view is that the U.S. is not a swing supplier,” he said. “I think U.S. producers are a lot better, and they can actually ‘out-compete’ the market.”

Instead, Webster focused on the his¬torically high level of U.S. inventories, or stocks.

“It’s likely we’re going to be dealing with a higher storage capacity level than we’ve had in the past, because we don’t have OPEC acting in a traditional way,” he said. “If we assume that we convert stocks into a flow [of production], it starts to look like storage is actually our swing supplier.”

June data from the U.S. Energy Information Administration (EIA) shows Lower 48 production down by about 1 MMbbl/d from the March 2015 peak. With domestic production in decline, it is logical to look to external factors—imports—to partly explain the increase in inventories.

U.S. imports have been trending upward. A simple average of weekly EIA import data shows August imports running at approximately 8.5 MMbbl/d, up from 8.3 MMbbl/d in July. Year-over-year comparisons show even steeper increases. The July and August import numbers compare to levels of approximately 7.7 MMbbl/d and 7.5 MMbbl/d in August and July, respectively, of last year.

Clearly, a trend of falling domestic production is a factor in rising imports, assuming demand holds at least flat. But has it, in practice, been a simple one-to-one relationship?

A Barclays research report, “An Imported Overhang,” tracked the pattern of production declines and import increases in the 14 months from May 2015 through June 2016. While demand was “stronger than forecast,” and production declines were “steeper than forecast,” the result was “only a marginal draw in crude inventories as net imports remained high,” the report said.

“We calculate that the cumulative increase in net imports has exceeded the cumulative decline in production by 70,000 bbl/d since April 2015, adding 30.4 MMbbl to crude inventories. This means more than 60% of the net increase in crude overhang over the past 14 months has come from excess imports [over what] may be justified by production declines,” the report said.

So does the U.S. serve simply as a magnet for excess global supplies? Are we to lose hope that inventories will gradually erode as crude prices remain range-bound at $50/bbl or lower?

A late-August report by Credit Suisse shines light on the EIA definition of “other oils.” The category includes a “large vol¬ume of NGLs, for which the surplus rel¬ative to normal has risen sharply since mid-June,” according to the analysts. A function of liquids-rich production in shales such as the Marcellus and Eagle Ford, the NGL inventory has a “strong sea¬sonality,” peaking in the third quarter and bottoming at the end of winter.

Adjusting for NGLs, and focusing on “the big oil products,” the Credit Suisse report pointed out that while “large U.S. downstream inventory surpluses persist midway through the third quarter, these surpluses are at once less big than they seem and have steadily been declin¬ing since early May, as should be in the case of a world supply and demand that is rebalancing.”

A report by Tudor, Pickering, Holt & Co. was emphatic that a global rebalancing is underway.

“Globally, only Saudi, Libya and Brazil have the ability to grow production without increasing capex,” said the report, noting “this includes Iran and Iraq.” Since the second quarter of 2015, it said, non-OPEC production is down by nearly 1 MMbbl/d while OPEC has raised output by 900,000 bbl/d—a result of an extra 1.4 MMbbl/d from Saudi Arabia, Iran and Iraq, offset in part by declines in Venezuela, Nigeria and Libya.

Will global production adjust, fundamen¬tals take hold and elevated inventories—that unwelcome guest—finally leave?

“Expand your option set,” advised Webster in his Rocky Mountain Energy Summit talk to E&Ps. “Normal is gone. We’re dealing with a new world.”

Chris Sheehan can reached at csheehan@hartenergy.com.

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