Peak Oil Notes – May 22

After a five-session losing streak, oil prices reversed on Wednesday, climbing about a dollar a barrel in New York and London to close at  $58.98 and $65.03 respectively.  The weekly US stocks report showed a third weekly drop in the total US crude inventory of 2.7 million barrels, which was more than the Wall Street analysts expected. Market observes noted that much of the drop in inventory came on the isolated West Coast of the US, which usually does not impact prices.  Better economic numbers from Japan also contributed to the higher prices on Wednesday.  The overall picture is still believed to be one of oversupply by 1–2 million b/d, which should keep a lid on prices for a while.
 
Reuters published an interesting report this week noting just how bad the world’s oil supply and demand numbers really are. They note that the only numbers that are current and accurate are the storage and refining numbers collected by the US’s EIA each week. Even in the US, however, actual production numbers are usually weeks behind and those published by the government each week are estimates or projections of trends. While the government knows how much oil leaves refineries each week, it has little idea where it goes. Export numbers are months late and actual domestic consumption other than by tax receipts is difficult to track. MasterCard used to report estimated US gas pump sales but those numbers are now proprietary.
 
In the rest of the world the numbers are worse to nonexistent. In many countries some of the numbers related to oil production and consumption are state secrets and only given out late and reluctantly. In most of the underdeveloped world very few statistics related to oil consumption are collected at all.
 
The three main statistical agencies have been reporting a surplus of between 1.5 and 2.5 million b/d since the first of the year, which means that global stockpiles should have increased by between 200 million and 350 million barrels. US stocks are up by about 100 million barrels in that time and China, which has been filling its strategic reserve tanks, may be up by 50 million to 100 million barrels, although this is a state secret. There seems to be 100 million barrels or so unaccounted for on the books of the world’s statistical agencies.
 
Reuters’ point is that market price swings take place on minor changes in reported numbers – usually only in the US — and are dwarfed by the lack of information from the rest of the world which is the growing portion of the world oil market. This situation allows unexpected prices swings to occur when the markets get out of balance.
 
The situation in the Middle East continues to deteriorate with ISIL forces overrunning Palmyra in Syria and Ramadi in Iraq. It seems fair to say that the Middle East is approaching another turning point in the next few months with coalition bombing unable to hold back ISIL and other insurgent attacks on the Syrian and Iraqi governments. So far, there has been no impact on Iraq’s substantial oil exports, but the government’s mounting problems bode ill for the future.
 
The struggle in Yemen continues with no end in sight. The humanitarian ceasefire is now over and the fighting and Saudi bombing has resumed. A potential crisis between the Saudis and Iran seems to have been avoided for the minute, with Tehran agreeing to have its humanitarian aid ship inspected by the UN before moving into a Houthi-controlled port.
 
The Greek debt crisis continues with the threat of a default increasing.  This could lead to a weaker euro, and downwards pressure on oil prices.