March 22, 2012 / 8:03 PM / in 6 years

Murky data makes oil trading tricky

LONDON (Reuters) - Oil markets are difficult to read at the best of times, but what if key data point in different directions and even the world’s biggest producer and main consumer can’t agree?

Traders work in the Crude Oil trading pit at the New York Mercantile Exchange in New York, February 22, 2005. REUTERS/Mike Segar

Policy and investment decisions become very difficult.

Oil has risen 15 percent this year to around $125 per barrel on talk the world market is tight and facing a supply crunch.

Speculation over possible war with Iran and even the closure of the Strait of Hormuz in the Middle East Gulf has encouraged investors to buy oil in the hope of making large profits.

Some industry data suggest the market is right to be worried. Other figures say it may be a wild over reaction.

Baseline numbers for demand, supply and inventories are being read quite differently and in some cases are pointing in opposite directions. Vast areas of the world market provide no data at all or incomplete figures, making any sensible forecasts exceptionally difficult.

Even the United States and Saudi Arabia, close allies with huge resources and entire government departments devoted to statistical analysis, can’t agree on the state of the market.

Top exporter Saudi Arabia sees fuel supplies far out pacing demand and says there is no justification for oil at current levels. Washington, the world’s no. 1 consumer, says producers, namely Saudi Arabia, need to pump more to cool prices.

“My only mission is to convey to you that there is no supply shortage in the market,” Saudi Oil Minister Ali al-Naimi said on Tuesday at a news conference called to try to soothe the market.

“We are ready and willing to put more oil on the market.”

U.S. Deputy Energy Secretary Daniel Poneman does not agree.

“We think the markets are tight,” Poneman said last week. “Therefore, we think there’s a need for more production.”

The opposing views show just how tough it is to measure supply, demand and stocks in a timely way to determine whether the world is short or long oil.

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Graphic on OPEC oil supply and demand:

link.reuters.com/fyz27s

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SIMPLE MATHS

Oil is within $20 of 2008’s all-time high of $147 as tighter Western sanctions on Iran threaten to slow the country’s oil exports. Some analysts, however, see every possibility of more oil, not less in the coming months.

On the face of it, supply is relatively easy to count.

The world’s leading forecasters see output from the Organization of the Petroleum Exporting Countries at a four-year high of 31 million barrels per day (bpd). Demand for the group’s oil is running at around 30 million bpd.

Simple maths show supply well in excess of demand, but there are widely diverging views on how much of that oil is actually building up in storage tanks.

“On paper at least, current conventional global supply and demand balances appear to show a market awash with crude oil,” said Lawrence Eagles of JP Morgan, but says the market doesn’t reflect that: “High prices and backwardated structures in crude and product markets reflect the underlying tightness in global crude inventories.”

Eagles and other leading analysts say one of the keys to understanding the oil market is the level of stockpiles. But it is nearly impossible to get an accurate fix on the amount of oil that is being stored in large parts of the world, particularly in energy-hungry China and India.

Others see fast rising stocks of up to more than 1 million bpd during the first half of the year and, other than the Iran supply risk, cannot understand why prices do not come down.

“With this surplus in production from the OPEC countries, inventories will continue to build,” said Oswald Clint of Bernstein Research.

Saudi Arabia’s oil chief agrees. Commercial inventories in countries of the Organization for Economic Cooperation and Development (OECD) were likely to reach 60 days of forward cover in March from 57 days in January, he said.

OUTAGES

Totting up the outages in the market -- South Sudan, Yemen, Syria, the North Sea and Canada -- is also a simple exercise. According to Reuters estimates, more than 1.1 million bpd is offline.

Saudi’s Naimi described the losses as “miniscule”.

He has a better understanding of the market than most. At least he knows what the Kingdom is pumping. Naimi says Riyadh is producing 9.9 million bpd, its highest in decades. Estimates from some respected forecasters are up to 500,000 bpd higher.

There is no agreement on demand either.

The consensus is that oil demand in Asia is booming while growth in Europe and the United States is slowing, curbing fuel consumption. Beyond that no one can agree.

The two top global oil forecasters - the U.S. government’s Energy Information Agency (EIA) and the Paris-based International Energy Agency (IEA) - can’t even produce a consensus on what global demand will be this year.

Their estimates are almost 1 million bpd apart with the EIA at 89.62 million bpd and the IEA at 90.47 million bpd.

Output capacity is equally controversial.

The IEA puts Saudi sustainable production capacity at 11.88 million bpd, leaving a desperately slim cushion of less than 1 million bpd of possible extra Saudi supply if Iran’s output were to be cut by up to 1 million bpd due to sanctions.

Again, Naimi disagrees. The Saudi minister insists that Riyadh can produce at full capacity of 12.5 million bpd at a moment’s notice.

“Trust Saudi Aramco,” he said. “If you ask them to deliver 12.5 million, they will deliver 12.5.”

Saudi has also filled up stockpiles inside and outside the kingdom to meet “immediate need”, he said, with about 10 million barrels being held in Rotterdam, Sidi Kerir and Okinawa.

Editing by Janet McBride

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