Global Oil Trade in Turmoil: Data Easily Manipulated

The graphic below displays China's rapid buildup in oil reserves, which may be at least partially responsible for much of the distortion of global market signals.

Sage observers of the global oil trade often assume that the markets are solidly built on issues of supply and demand. But what do markets do when the data grow confused, and supply and demand are not so easy to sort out?

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.

...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.

...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. _Reuters

Supply and demand data are clearly being manipulated to the benefit of particularly powerful and influential traders, whose fingers reach even into government ministries and into national and international energy agencies.

When markets reach such a state, there is very little of certainty to be said except that a select group of individuals and organisations is likely to profit very handsomely, at the expense of a huge number of rubes.