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.”