'Missing barrels' may hold new oil demand By Robert Grattan June...

'Missing barrels' may hold new oil demand

By Robert Grattan
June 16, 2015



Oil that ought to be in storage tanks isn't, suggesting to some analysts that demand may be higher than the International Energy Agency's estimate.

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 that the world is producing more oil than it needs, independent analyses suggest that 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.

International benchmark Brent crude closed Tuesday at $63.70 a barrel, down 25 cents. U.S. benchmark West Texas Intermediate rose 45 cents to $59.97.

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."


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