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HOUSTON — The sea of crude oil drowning markets may be only half as deep as the International Energy Agency says it is, according to analyst reports.
The Paris-based group, made up of 29 energy-importing nations, has set a somber tone for oil producers with its estimates that the global supply of oil has outpaced demand by about 2 million barrels per day, thanks both to slow demand growth and booming supply. That glut of oil has been the major reason that crude prices have fallen by about 40 percent from last year’s highs.
But while few dispute there’s too much crude production, several independent analyses suggest that the IEA’s numbers are overstating the size of the glut.
For each of the past 15 years, the IEA has revised its annual demand figure higher by an average of 700,000 barrels per day, according to numbers crunched by financial services firm Raymond James.
And thanks to the recent large decline in oil prices, today’s figures could be even more distorted.
Oil and gas analysts looking for more insight in the IEA’s figures have started by examining what the agency calls its “miscellaneous to balance” figure — a rough proxy for the margin of error in the IEA’s supply-demand estimate that’s arrived at by comparing the amount of excess estimated supply to more accurate crude inventory data.
In theory, crude oil inventories and the supply-demand balance should line up. If the oil markets are oversupplied by 2 million barrels per day, then that amount of excess crude should be skimmed into tanks and total storage should grow by 2 million barrels per day.
In practice, the two figures rarely fit together well.
Recently, the estimated extra supply on the market has outpaced the rate at which oil has built up in tanks. Essentially, the IEA’s recent supply-demand figure shows an oversupply of 2 million barrels per day, but inventories are only building by about 800,000 barrels per day.
That leaves about 1.2 million barrels which the IEA classifies as miscellaneous to balance. Those barrels are oil that was counted as supply and not consumed as demand, but also isn’t showing up in the separately compiled IEA’s storage data.
Analysts call them “missing barrels,” and they get lost for a number of reasons. Some end up in tanks the IEA doesn’t see, and others are sometimes created out of thin air if the IEA’s supply data comes in too high. Historically, most of the missing barrels have come from the IEA underestimating oil demand.
And amid the recent crude oil market turbulence, there has been plenty of crude leaking from the IEA’s market models.
The IEA’s miscellaneous to balance figure grew to 1.6 million barrels per day in the final quarter of 2014 and 1.2 million barrels in the first quarter of 2015. Those are the highest figures reported since 1998, according investment bank Simmons & Co. International.
“Unfortunately global energy data quality is not as precise as we’d hope it to be, especially during periods when you have major changes to supply dynamics and price,” said Guy Baber, an analyst at Simmons & Co.
If the IEA revises the first quarter’s numbers as it has in the past, Baber estimated that about 975,000 barrels per day of the missing oil barrels could be added back into the model mostly by boosting demand.
Those figures are roughly in line with Raymond James’ analysts estimates, which show the IEA could be underestimating demand by as much as 1.2 million barrels per day in 2015.
Adding those figures back into the demand column would cut the IEA’s estimated oversupply of crude oil by about half.
The adjustment could send prices up — though both Simmons & Co. and Raymond James analysts cautioned that the effect would be somewhat mitigated because the energy agency is also likely understating oil production figures, though to a lesser degree.