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‘Missing barrels’ may hold new oil demand


The sea of crude oil drowning markets may be only half as deep as an influential estimate suggests.

The Paris-based International Energy Agency, an alliance of 29 oil-importing nations including the United States, has contributed to the downturn in oil prices with its estimates that the global supply of oil is outpacing demand by about 2 million barrels per day, thanks to sluggish growth in fuel consumption by developing nations and a U.S. production boom.

That imbalance is the main reason crude prices are 40 percent lower than a year ago.

While there’s little dispute the world is producing more oil than it needs, independent analyses suggest the agency’s regular reports understate how much oil the world uses every day, and therefore exaggerate the size of the glut.

Analysts reached the conclusion by examining what the agency calls its “miscellaneous to balance” figure, designed to reconcile its estimate of daily demand with more precise data on oil inventories.

In theory, when supply exceeds demand, the difference should show up as additional oil in storage tanks: If the oil markets are oversupplied by 2 million barrels per day, then stored oil should rise by 2 million barrels per day.

In practice, the two figures rarely jibe because supply and demand figures are only informed estimates.

The International Energy Agency might underestimate daily demand, or its separately compiled inventory number might miss some stored oil.

A portion of the world’s excess crude ends up in storage the agency doesn’t monitor closely, such as on tanker vessels or in China’s strategic reserve.

Recently, the agency has estimated excess daily supply of 2 million barrels, but has found only 800,000 new barrels a day in the tanks it monitors.

That leaves 1.2 million barrels that the agency classifies as miscellaneous to balance and that other analysts sometimes call missing barrels — oil that’s available and isn’t consumed, but doesn’t show up in storage.

“Unfortunately, global energy data quality is not as precise as we’d hope it to be, especially during periods when you have major changes to supply dynamics and price,” said Guy Baber, an analyst at Simmons & Company International.

Such changes were occurring when oil prices plunged in the final quarter of 2014 and the first quarter of 2015, and during those quarters the agency’s miscellaneous to balance figures jumped to their highest levels since 1998, according to Simmons & Company — to 1.6 million barrels at the end of 2014 and 1.2 million barrels in this year’s first quarter.

If the International Energy Agency revises first-quarter numbers as it has in the past, Baber said, 975,000 missing oil barrels a day could be added back into the model, mostly by boosting the demand side.

Financial services firm Raymond James has calculated that the agency revised its estimate of daily oil demand upward by an average 700,000 barrels in each of the last 15 years.

Raymond James analysts say that the agency could be underestimating this year’s daily demand by as much as 1.2 million barrels.

Adding the Raymond James or Simmons figures back into the demand column would cut the estimated oversupply by about half.

The adjustment could send prices up.

Simmons & Company and Raymond James analysts cautioned that revised demand figures probably wouldn’t cause prices to spike because the agency also may be understating production figures, though by smaller amounts.

“It’s modestly higher oil prices,” Marshall Adkins of Raymond James said. “Don’t look for $100.”

11 Comments on "‘Missing barrels’ may hold new oil demand"

  1. Nony on Mon, 22nd Jun 2015 8:35 am 

    Follow the money–it will tell you the glut is over and there is not an inventory holding phenomenon. Contango structure has gone from 10+ dollars/year to 2-3. Storage costs have diminished to a fifth of what they were during the “glut”. And price has recovered from 50 to 65 (Brent). The glut (a temporary imbalance) is over.

  2. rockman on Mon, 22nd Jun 2015 9:35 am 

    Here’s the big problem with the EIA “oil glut” using their own stats: in 2013, when oil prices were much higher then today, the EIA says the world was producing 93 mm bopd and consuming 90.9 mm bopd. IOW there was about 2 mm bopd EXCESS production when oil was selling for $90+/bbl.

    So in 2015 we have an oil glut because the world is supposedly producing 2 mm bopd more then it’s consuming but in 2014 we had an oil shortage that led to higher prices because the world was producing 2.1 mm bopd more then it was consuming.

    Don’t ask me to explain…those are the EIA’s official numbers. Ask them. LOL.

  3. Outcast_Searcher on Mon, 22nd Jun 2015 10:03 am 

    rockman, as an investor (who trades some oil stocks but not oil futures), I suspect that PERCEPTION plays a big role in the price.

    When the price started plummeting in 2014 it’s as though it dawned on a lot of people (and scared them) that there was this “glut” issue. The MSM certainly piled on big time, with articles about financial armageddon for oil companies, much lower prices for years or forever, etc. Remember all the stories about running out of capacity to store oil, and oil plunging to $20ish? Ooooooo, scary!

    With my investor hat on, while this was going on and oil got to $50ish, I simply asked myself whether anything fundamental as far as long term global demand hand changed. Chindia and the rest of the third world, where most of the demand growth is coming from? Nope. Major changes in the western world like a big acceleration of CAFE standards? Nope. So I was a buyer, and I’ll still be one on significant dips.

    There were the scary stories of Saudi Arabia “flooding” the market to crush expensive LTO producers, etc. But how many years can they afford to do that while running HUGE budget deficits? Again, the MSM played this fear for all they could.

    So we’ve got some more supply, for now (apparently). And global demand growth (as a general trend) should continue apace as the global economy, with lots of help from Chindia, continues a growth trend.

    The availablility (and price) of oil will (over time) be dictated by the actual and PERCEIVED long term supply/demand balance.

    I could be wrong about all this of course, but I can’t imagine oil having sat near $100 for nearly four years was “a fluke” — since the big picture hasn’t changed all that much for the longer term.

  4. Nony on Mon, 22nd Jun 2015 4:53 pm 

    The fetish people have with looking at consumption, production, and storage is pretty silly. In time, all the production gets consumed. You also have people confusing the most basic micro econ 101 concept of supply and demand. Those are indeference curves of price versus volume. Not the temporary imbalances related to storage.

    Don’t listen to the idiots on TV. Use your head and look at the spreads.

  5. Northwest Resident on Mon, 22nd Jun 2015 5:06 pm 

    Nony — So everything is great, no worries, right? Econ 101 rules the universe — no exceptions. We’ll have oil to burn forever, even if we have to pay $1000 per gallon at the service station — big deal, supply and demand will work it all out. Infinite consumption by an infinitely growing population supplied by infinite sources of oil. That isn’t Planet Earth — that is NONY WORLD!

  6. GregT on Mon, 22nd Jun 2015 7:26 pm 

    ” In time, all the production gets consumed.”

    So if the commodity is sold for a price less than the cost of production, who takes the loss?

    If the affordability for the product is at a price point less than what it can be produced for, and that product is THE key resource that drives all other economic activity, and it has no known equivillant substitute, what then Nony?

  7. Apneaman on Mon, 22nd Jun 2015 7:52 pm 

    The Crash of 2015: On Track, Behind Schedule

    “To review our expectations of last summer: the hideous decline rate of fracking wells (of up to 90% in three years) was forcing frackers to borrow huge amounts of money to put up large numbers of new wells at a breakneck pace in order to preserve the illusion (it was always an illusion) of a revolution in American oil leading to prosperity and “energy independence.” On average, it cost the frackers over $4 to get $1 of revenue in the door during the first quarter of this year. A year ago, with oil commanding $100 a barrel, they were still spending $2. As the old joke goes, the only way to make any money when you’re losing on every transaction is to make up for it with volume. But since most of the money spent was capital expenditure — i.e. new wells — their operating statements showed profits and nobody looked at the balance sheets.”

    “Are they broke? Pretty much. As Bloomberg reports (“The Shale Industry Could be Swallowed by its Own Debt”), S&P has so far this year lowered the outlook or downgraded the credit of almost half the exploration and production companies it rates. Amazingly, despite the awful numbers, lenders have continued to pour money into the zombie companies (See “Oil Money: Too Dumb to Fail”) as they struggle to keep pumping so they can turn over their debt so they can keep pumping. Remember the old advice — when you find yourself in a hole, stop drilling? They don’t.”

    “Is oil fracking production declining? Yes, indeed. According to the U.S. Energy Information Administration, fracking output declined last month, by more this month, and will continue falling off at least through the end of the year. (It’s really a forever thing, but they can’t bring themselves to say it.) [See “It’s Official: The Shale-Oil Boom is Over”]. Worldwide, 150,000 jobs in oil and gas production have vaporized, with the U.S. having the “fastest and steepest decline.””

  8. Nony on Wed, 24th Jun 2015 3:36 am 

    NWR, drop the hate for econ 101. For one thing, you are confusing macro and micro economics. For the other thing, micro econ works in bad times or good. In growth or collapse. Supply and demand is really basic.

    Also, the Hotelling rule is a basic micro econ concept related to peak oil. You all can’t simultaneously take credit for the 100+ (or even 60+) oil as evidence of scarcity, of coming shortages while at the same time saying that supply and demand are irrelevant or that price decreases mean nothing. It’s not intellectually consistent if you do.

  9. Davy on Wed, 24th Jun 2015 7:01 am 

    NOo, get out of your Econ 101 cocoon and see a full view of human nature in a natural ecosystem. You and your Econ 101 kind are part of the reason we are where we are and that is at a dead end. We are at the end of growth because we have exhausted a planet in as little as 200 years for the very thinking you described above.

    I find Econ as a tool of evil when one considers it in this earth killing context. NOo, you are preaching evil how does that feel? You are nothing more than a pawn of this mechanization of evil so I am not saying you are evil but you are delusional and mistaken.

  10. GregT on Wed, 24th Jun 2015 8:15 am 

    Econ 101 is a failed ideology that ignores the basic principles of physics and mathematics. Econ 101 is leading the human race down the path to our complete destruction. It is an ideology based on greed and consumption. It is pure evil.

  11. Northwest Resident on Wed, 24th Jun 2015 9:55 am 

    Nony — I’m starting to realize that you really, truly believe the crap that you’re writing. Versus just being a troll on a mission to confuse and distract, or an extremely bored individual who enjoys starting arguments in his ample free time.

    In other words, I’m starting to believe that you really do live in Nony World, mentally, and that you keep alter egos (marmico, Perk Earl, Papa Smurf, who else) as guards at the gated entrance to make sure that no unauthorized ideas or thoughts can enter and disrupt the calm, peaceful, wonderfully efficient environment of Nony World.

    After hanging out on this forum for so long, presumably reading the articles and the comments, it is astounding how you have been so successful at filtering out reality and uncomfortable truths. You are the King of Denial, and a classic textbook case of how a human being can live in a dream world that is totally disconnected from reality, and yet still survive somehow.

    Discussing fact, debating ideas and trying to have a normal conversation with you is pointless. You don’t deal in reality. The questions you just asked and the points you just made prove once again that not only do you not “get it”, you’ll NEVER get it.

    So, I’ll just keep on doing what I’ve been doing. Poking you with a stick every once in a while to see what reaction I get, occasionally correcting your false assertions for the possible benefit of any newbies who might be misled by your BS, and joking around with you off and on while keeping a safe distance.

    Have a nice day in Nony World, where the trains are always on time, all the pollution and destruction of the natural environment happens somewhere else and to somebody else, where there is ample fossil fuel energy to last for the rest of your life at least which is all you care about, and where the stars are in total alignment with Econ 101 principles. Such a wonderful place to live!

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