Oil prices fell into the upper $30s early last week and stayed there. As it has for many weeks, the drumbeat of bad economic news and rising stockpiles competed with the OPEC’s efforts to cut crude supplies. For now, the sagging global economy has the markets convinced that demand for oil is dropping faster than OPEC can reduce supplies.

Oil storage is at a 25-year high as stockpiles continue to build. At the major US commercial stockpile at Cushing, Okla. stocks hit an all-time high of 33 million barrels. Estimates of oil in floating storage aboard charted tankers continue to increase. A Norwegian company estimates that 40 to 45 large tankers anchored around the world may currently be storing about 80 million barrels. Although world inventories are well above average, the IEA says that preliminary numbers for December suggest that OECD inventories contracted by 8 million barrels despite the large increase in US stocks.

Currently the oil markets are in a posture known as contango. While oil for February 2009 delivery is trading at $36 a barrel, oil for February 2010 delivery is trading for nearly $60 a barrel and for February 2013 over $70 a barrel. In this situation, the spread in prices far outweighs the monthly storage charges so that making money is a sure thing so long as one can find a place to store the oil. With little storage still available, the need to sell contracts to avoid taking delivery is forcing technical distortions into markets that tend to keep short term oil prices low.

Platts reported last week that OPEC production in December fell by 640,000 b/d while the IEA is saying that production slipped by only 330,000 b/d from November. Neither of these cuts is enough to clear the crude surplus and force an increase in prices. As Platts Global Director for Oil said last week, “the most important number to watch in coming weeks is OPEC’s actual production in January.”