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While analysts and industry officials hail the tightening of the oil market and the rebalancing of supply and demand, the huge build of global stocks last year poses the question of what happened to all those barrels of oil accumulated during the COVID-19 shock to demand.
The ‘missing oil barrels’ may be distorting the analysts’ view of how balanced the market really is, Jinjoo Lee of The Wall Street Journal argues.
The ‘missing barrels’ issue tends to resurface on the oil market when there is a large distortion of supply and demand or a shock to the balances, which 2020 undoubtedly was.
The market has to contend with ‘missing barrels’ in nearly every oil cycle, according to the paper ‘The COVID-19 Shock and the Curious Case of Missing Barrels’ by Bassam Fattouh, Andreas Economou, and Michal Meidan of the Oxford Institute for Energy Studies.
The so-called missing barrels are those barrels of oil that are basically unaccounted for by the International Energy Agency (IEA).
These barrels are “the gap between the change in inventory implied by global supply-demand balances on the one hand and the observed change in inventory levels by commercial and government entities (adjusted for floating storage and oil in transit) on the other hand,” the authors of the paper wrote in December.
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Based on IEA data, the authors estimated that in the first half of 2020—the worst of the COVID-induced shock—inventories globally increased by 1.39 billion barrels of oil. According to the IEA, out of the total inventory build in that period, OECD stocks accounted for 25 percent of the increase, while floating storage and oil in transit accounted for 8 percent of the rises. But the remaining 940.4 million barrels, or 68 percent of the total increase to balance, is “essentially unaccounted for including changes in non-reported stocks in OECD and non-OECD areas that the IEA labels as “Other & Miscellaneous to balance.”
According to the Oxford Institute for Energy Studies, the volume of missing barrels in the first half of last year was the largest ever recorded gap between observed and implied stocks since at least 1990.
These estimates highlight not only the opaque nature of observed oil stocks in China and other countries in Asia. They also highlight the argument that calling the ‘market rebalancing’ – and therefore, predicting oil price trends – is much more art than science.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
How convenient for the International Energy Agency (IEA) not to account for what it labels as missing 940.4 million barrels (mb). With the global oil inventories reduced from an estimated 1.39 mb at the height of the COVID-19 pandemic to an estimated 100 mb now, it means that the so-called missing barrels of 940 mb and OECD stocks of 348 mb are all counted for. It also means that the claim about missing barrels is no more than a ploy by the IEA to depress oil prices.
The IEA represents the world’s major consumers of crude oil (mostly Western nations) and therefore its objective is to ensure low crude oil prices for its members, hence the issuing of biased and inaccurate reports aimed at depressing oil prices.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London