Wednesday, March 9, 2016

Where has the oil gone? Missing barrels and market rebalancing

From @Reuters -- Global oil production exceeded consumption by just over 1 billion barrels in 2014/15, according to the International Energy Agency (IEA). Production exceeded consumption by an average of 0.9 million barrels per day in 2014 and 2.0 million bpd in 2015. Of the 1 billion barrels reportedly produced but not consumed, roughly 420 million are being stored on land in member countries of the OECD.

Another 75 million barrels are thought to be stored at sea or in transit by tanker somewhere from the oil fields to the refineries.

That leaves 550 million "missing barrels" unaccounted for, apparently produced but not consumed and not visible in the inventory statistics.

Missing barrels are recorded in the "miscellaneous to balance" line of the IEA's monthly report as the difference between production, consumption and reported stock changes.

The miscellaneous item reflects errors in data from OECD countries, errors in the agency's estimates for supply and demand in non-OECD countries, and stockpile changes outside the OECD that go unrecorded.

IEA data currently shows a miscellaneous to balance item of 0.5 million barrels per day in 2014 and 1.0 million barrels per day in 2015.

Missing barrels have been a feature of IEA statistics since the 1970s.

Over time, errors have occurred in both directions, and have ranged up to 1 million or even 2 million barrels per day.

Most of the time, the oil market ignores the miscellaneous to balance item, but it tends to become controversial when it becomes very large, either positive or negative.

The last time the miscellaneous to balance item was this large and positive (implying an oversupplied market) was in 1997/98 when the issue triggered fierce criticism of the IEA's statistics.

In the current episode, it is also very likely some of the 550 million barrels unaccounted for in 2014/15 have gone into unreported storage outside the OECD.

China's government is known to have been filling its Strategic Petroleum Reserve. More barrels are likely to have gone into commercial storage in China and in other countries outside the OECD.


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