Are 2023 oil prices due for a correction?


Throughout this year, the oil market has exhibited a relatively narrow range, lacking a prominent narrative to propel prices significantly higher or lower.

However, the stability in prices should not be mistaken for a lack of news stories and factors that impact the supply and demand dynamics.

The challenge lies in accurately assessing their overall impact on the market.

The best indicator comes from crude oil inventories, which help determine whether the market is experiencing oversupply or undersupply conditions.

Understanding inventory data is therefore essential for assessing the potential trajectory of oil prices. 

It can be used to gauge whether the market is in a state of balance or if there may be underlying imbalances that could potentially lead to price corrections in the future.

If global oil inventories have remained relatively stable, this would align with the recent period of price stability in the oil market

However, a substantial increase or decrease in inventories would undoubtedly generate more bearish or bullish indications, respectively, regarding price trends.

The graph below shows global oil inventories from January 2021 through February 2022 relative to the 2019 average.

We picked 2019 as a baseline because it was a fair representation of “normal” inventory levels before the distortions caused by the COVID pandemic.

By early 2023, oil inventories showed minimal changes compared to the previous year.

Prices remained below the 2019 baseline after the depletion of excess supplies that had accumulated during COVID period, coinciding with the rebound in oil consumption.

This might look surprising when you consider the temporary jump in oil prices last year when concerns surrounding Russia’s invasion of Ukraine led to a surge in oil prices.

The temporary price increase was due to Russia’s ability to sustain its oil exports, preventing a prolonged price surge.

We can combine graphs showing oil prices and inventories to visualize this negative relationship. Both are baselined to their 2019 averages, respectively. 

The video below shows this combined data.

You can see the negative relationship between inventories and prices, but then the inventory data is inverted to more clearly see how inventories and prices mostly track each other.

The key takeaway: when inventories go up, prices go down. But there are always exceptions to the rule in the short-run.

From this combined graph, a few lessons can be extrapolated: (1) It is evident that there is a general correlation between inventories and prices. (2) When inventories increase, prices tend to decrease, and conversely, when inventories decrease, prices tend to increase.

However, there can be exceptions to this relationship in the short term when significant events occur.

In the case of Russia’s invasion of Ukraine, traders anticipated a substantial impact on supply.This led to deviations from the typical inventory-price relationship, as traders made significant bets on supply constraints.

These instances demonstrate how prices can sometimes move ahead of fundamentals in the short term. However, there is always a reckoning, and prices eventually align with the underlying fundamentals.


As we assess the first half of 2023, the impact on inventories reflects a stark division in the global oil market.

  • China has capitalized on discounted Russian oil, resulting in heightened imports
  • On the other hand, OECD member states have felt the effects of reduced OPEC production cuts, which have contributed to the drop in available supply.

Unsurprisingly, the collective inventories of OECD member countries have declined so far this year, while China’s inventories have risen. 

The map below illustrates the inventory levels for individual OECD member states and China. 

In contrast to most OECD countries, China has experienced an increase in inventories over the course of the year.

The inventory data is our own based on in-house measurements of storage tanks using satellite imagery.

Our extensive coverage provides a comprehensive view of global oil inventories.

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