Oil Demand And The Case Of The Missing Barrels

by Deon Daugherty, Senior Editor

Against a backdrop of consistent upward demand revisions, the International Energy Agency’s (IEA) recent admission of oil being lost in a phantom “missing barrels” category suggests global demand is regularly underestimated.

Analysts at Raymond James & Associates said in a June 15 note that the 1.2 million barrels per day (MMbpd) of crude reported the previous week equaled a high not matched since 1998.

As RayJa explained, “missing barrels” is a number used by the IEA called “miscellaneous to balance” (MTB) when changes in global oil supply and demand don’t add up to measured changes in inventory. A positive MTB number exists when supply is overstated; demand is understand; inventories are understated or a combination of those factors.

“Over time, the IEA data [like U.S. economic data] typically goes through numerous revisions,” RayJa said. “This means we should not rely too heavily on the accuracy of recent reported data that has not been revised.”

Most of the time, oil demand is the category that makes up for the missing barrels. In the last 14 of 15 years, IEA has revised that figure by 700,000 MMbpd on average, the analysts said.

“This implies [assuming supply and changes in stocks are not reesponsible] that global oil demand estimates and meaningfully understated on a consisted basis by the IEA,” RayJa said.

Analysts at Tudor Pickering Holt & Co. in Houston noted the discrepancy in a note to investors that discussed the missing barrels. EIA had projected a missing barrel count of 1.6 MMbpd in 4Q and 1.2 MMpbd in 1Q 2015. Those numbers suggest “recent demand is understated, supply is overstated or a combination of both.”

All of this is to say that we can expect revised numbers to be closer to the reality of the oil supply/demand equation. The oversupply in 2014 needs to be revised to 300,000 barrels per day (bpd), half the initial 600,000 bpd states, RayJa said.

“More importantly, the 2015 model goes from being 1.2 MMbpd oversupplied to a much more reasonable 300,000 bpd oversupplied,” the analysts said. “Simply put, this means the global oil market is meaningfully tighter than the original IEA numbers would have suggested, thereby implying potential upside to current prices.”


One Comment

  1. January 19, 2016.
    The media will go just as crazy and over sell things once the price of crude begins to rise again, so let’s all of us just hang in there!
    By holding our stock we at least can look forward to dividends and of course further down the track, ( my thinking based on all the information I have found ), mid 2016, we should also benefit from any small uptick as people who panic now will panic again and try to get back into the market.
    I for one am crushed right now, but that’s life, I can afford to eat well and I have my health, so I’ll try to make this my first year of trading like Mr.Buffett, buying in while the world panics and waiting for my dividends, while always being ready to sell once things go crazy on the upside.
    Think that the current devaluation of oil due to the understatement of demand, ( up to 1MBD ), doesn’t justify the severe drop in prices? I’m with you 100%.
    But don’t forget that this will repeat itself on the upside too- the price will go higher than the facts will justify.

    Lastly- let none of us forget the rule of the real world, when the man tells you not to do some thing, you do it even more.
    In this I am looking at Iran which supposedly had not been selling x amount of oil to the market, I for one believe that a good deal of that oil was always being sold anyway, but on the black market which ISIS has so kindly shone a light on for us all. Furthermore, any oil that Iran was selling off the books will now be sold into the market at a higher price so the end effect will be a fairly similar output but with one component of that output being able to fetch legitimate prices.



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