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Irina Slav

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How Satellites Revolutionize Oil Trading

The oil industry’s increasingly enthusiastic adoption of digital technology has been garnering more and more attention recently. Yet another field of technology has been making inroads into traditionally analog territory on the quiet, but with equally important implications: satellites.

Satellite data has become instrumental in providing reliable oil supply and production information to an increasingly volatile market. Companies such as Kayrros, OilX, and TankerTrackers.com all use data from satellites as well as other source to paint a more or less comprehensive picture of oil’s fundamentals and help inform trading decisions.

The growing importance of satellite data in the oil market became acutely evident recently, following the drone and missile attacks on Saudi oil production facilities, MarketWatch’s William Watts wrote last week. He noted that the increasingly frequent satellite launches and the advancements in machine learning and artificial intelligence that have combined to create a new, “alternative data” segment in the oil fundamentals market.

“Some governments are more transparent and better at disclosure, and some are not. So you really need this alternative data to have some kind of transparency or insights into what actually is going on, on the ground,” Joe McMonigle, senior energy policy analyst at Hedgeye Research told Watts.

It’s not just a question of transparency, either. Granted, in the case of Saudi Arabia, all eyes were on satellite data because of the Kingdom’s general opacity when it comes to problems. However, even the U.S. Energy Information Administration is not always accurate with its crude oil inventory figures, for example. The reason for this is that the EIA makes estimates rather than using real-time data, and that’s because real-time data is too difficult to obtain in an economical manner.

Enter satellite data providers.

The data that these companies generate and interpret is not only relevant with regard to inventories. Earlier this year, when every trader was wondering how much oil Iran was exporting after the United States removed sanction waivers for importers, it was satellite data that helped. Related: The Lithium Price Slide Isn’t Over Yet

Genscape ingeniously tracked gas flaring at Iran’s oil fields and based on that, concluded that the country was producing about 3.9 million bpd in August, just 15 percent down from the first quarter of the year. Now, while this is not an export figure, it did suggest, according to Genscape’s global director of petroleum intelligence, Devin Geoghegan, that, like production, exports had fallen less than many estimated.

Satellites and artificial intelligence are changing every aspect of the oil industry and oil markets as well, it seems. They can apparently provide much more accurate data about the global supply and production than traditional reports of the sort the EIA releases weekly and OPEC and the IEA monthly. What’s even more important, they can provide it in much shorter timeframes.

On the one hand, this removes some uncertainty from the oil market. On the other, this data could actually increase price volatility when enough of it accumulates. When in July Kayrros said that Permian oil producers underreport their fracking activity, meaning the U.S. production growth hailed as a game-changer came from more wells than thought, few took note. Last month, a number of reports in different media revealed that U.S. oil production growth is indeed slowing and could swing into a decline before this year’s end.

Perhaps traders still prefer to wait for the traditional sources of information to confirm something satellite data providers have registered earlier. Such is the power of authority and reputation. But it is possible the scales could tip the other way as the reliability of the information these “alternative data” sources provide becomes more public.

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on October 08 2019 said:
    Like digital technology, the global oil market should welcome satellite data which would increasingly become instrumental in providing comprehensive picture of oil’s fundamentals and help inform trading decisions.

    They have recently shown their worth by proving that the US Energy Information Administration (EIA) has not always been accurate with its crude oil inventory figures or US shale oil growth. They have also disclosed that Iran’s crude oil production hit 3.9 million barrels a day (mbd) in August and that Iranian crude oil exports had fallen far less than many estimated proving the failure of US sanctions.

    Satellite data will definitely add transparency, reliability and speed to market information

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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