Thursday, June 14, 2018

Global Oil Supplies Down To 58 Days, Four Hours, And Forty-Eight Minutes -- IEA -- June 14, 2018

If folks are confused by all the statements coming out of Saudi Arabia, this may be the reason.  
Reuters wonders if OPEC is moving the goalpost for its oil market scoreline.
I have never really believed whatever OPEC says but lately the flip-flops have seemed even more outrageous. First, there's too much oil; then, there's not enough oil; then, there's enough oil now but there won't be enough oil next year; and now, not only is there not enough oil now, there won't be enough oil next year, and US shale oil won't be able to make up the difference.

Four months ago, there was this article from Reuters: surge in global oil supply may overtake demand in 2018 (IEA).

Today, crude oil demand in 2019 will grow another 1.4 million bopd after growing a similar 1.4 million bopd this year (2018).

So, we go back to the data.

First, it's nearly impossible to find OECD crude oil inventories. I think it's around 2 billion bbls. This was from, March, 2018:
At 2.865 billion barrels, OECD stocks were 206 million barrels lower than in January 2017, but 50 million barrels above the latest five-year average, OPEC said. 
But ycharts says the number is 4.4 billion bbls. Whatever.

Regardless, what it is, no one knows how much is really needed.

In the US, we have better data, but folks interpret it differently. At 435 million bbls in reserves, analysts suggest that's below the average median/mean/average for the past five years. And yet, it certainly appears that historically, the US has done just fine with 350 million bbls in reserves. [My benchmark remains: 350 million bbls in reserves.]

So, let's look at what I think is the best metric: the number of days of crude oil supply.

For the US, my benchmark is 21 days. Anything more than 21 days is a "glut." We haven't seen 21 days or less since 2014.

Recent data, from the EIA, US days of supply of crude oil excluding the SPR:

Now, OECD (global) data. From a Financial Times article:
The level of oil stocks in countries within the Organisation for Economic Co-operation and Development has been used as the benchmark of energy market tightness for years.
With an inventory level – measured as the number of days that stocks are able to meet demand – at about 55 days, the market has been seen as roughly balanced.
Anything below has indicated a tight market; anything above, a loose one. The International Energy Agency estimates OECD oil inventories at the end of January to be about 58.2 days of forward demand, suggesting that the oil market is comfortably well supplied. Prices, the theory goes, should be moving lower.
Then this:
But the measure is faulty on two fronts.
Firstly, OECD oil inventories were relevant when rich countries were at the centre of oil consumption by a big margin. But they no longer have such status.
According to the US Department of Energy, the OECD last year accounted for just 53 per cent of global demand, down almost 10 percentage points from 62 per cent a decade ago. Moreover, oil consumption from outside the OECD will surpass oil demand from within it by about 2019. [We've been talking about this for the past several days.]
And this incredibly unenlightened statement:
When Chinese inventories are added to those of the OECD, the measure of coverage of demand drops by a hefty four days, from 58.2 days to about 54 days, suggesting a tight market.
First of all, let's get rid of the "point two" tacked unto the 58 days of supply. Give me a break. Some analyst is able to tell us that OECD (global) oil supplies work out to 58 days and 4.8 hours or 58 days, four hours, and 48 minutes? LOL. 

But seriously, we have no idea how much oil is really sloshing around in tankers or in pipelines -- if it's difficult to come up with numbers for the US (the API and EIA weekly numbers are often quite different), think how incredibly inaccurate global data is.

Then this: look at the days of supply again, from the article --
... when Chinese inventories are added to those of the OECD, the measure of coverage of demand drops by a hefty four days, from 58.2 days to about 54 days, suggesting a tight market.
Remember, a "tight number" was defined as 55 days or below. So 56 days, the Financial Times would have called it a "loose market," but at 54 days, it's a "tight market."

Tell me, truthfully, do you see any difference between 58 days and 54 days of supply for the entire OECD plus China?

The last time I looked at this was February 19, 2018.

ycharts has data as recent as February, 2018: OECD Petroleum Stocks is at a current level of 4.407B, down from 4.429B last month and down from 4.656B one year ago. This is a change of -0.51% from last month and -5.36% from one year ago.

The EIA site might be the best site for such data. Take a look at the EIA graph going back to January, 2013. It certainly appears that the range has been very, very narrow, from 55 days at the very low to 65 days at the very high. Right now, we are pretty much near the lower end but projections for mid-2019 puts us smack-dab in the middle of the range, at about 60 days.

Bottom line: none of us -- analysts or arm-chair nattering nabobs of negativity -- have a clue.

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