Crude inventory accounting and speculation in the physical oil market

Index of Scaled Physical Inventories ISPI) of Crude Oil Measured by Inventory Scaled by Sales: The graph shows the ISPI measure ± 1 standard deviation for 13 of the largest oil companies throughout the sample period (1990Q4 to 2012Q1). The left axis reports the ISPI measure and the right axis reports the price of a barrel of crude oil. ISPI declines until the turn of the century and the declining standard deviation suggests a drive for efficiency shared by most industry participants (homogeneity in behavior). However, this changes as the Brent crude oil price starts to increase after Q3 2003 and continues to rise up to a maximum in Q2 of 2008. Oil companies anticipating a positive momentum market from 2003 onwards could take on profitable speculative inventory positions. The large standard deviation around the ISPI measure post Q3 of 2003 is consistent with a subset of firms holding greater oil inventory in anticipation of the rising crude oil price.221