Crude Prices Rebound, But Barrels �Missing� From Inventories, Says CGES

Crude prices have regained about half of what they lost during the mid-March to mid-June period, the Centre for Global Energy Studies (CGES) observed in the latest issue of its Monthly Oil Report , released on 23 July. But while it appears that global crude output has exceeded demand in recent months, the locations for that extra production have yet to be identified.

The London-based consultancy said it was tempting to see the price rebound as the result of tougher US and EU sanctions on Iran, but �there are other factors at work.� Bad economic news, it said, is likely to lead to further economic stimulus during the second half of the year in the US, EU and China that is giving rise to expectations in a boost in oil demand. �Meanwhile, supply disruptions continue to plague the industry, keeping worries about a potential shortage of supply on the boil, despite the boost to Saudi Arabia�s production,� the CGES said.

�It may seem odd for the market to be concerned about supply after two quarters of massive oversupply,� CGES said, adding that global production exceeded demand by about 1.8mn b/d during the first half of 2012. But it noted: �the additional volumes have yet to show up in observable oil inventories.� It said those stocks that can be seen are in the OECD or are oil at sea, which have risen by 800,000 b/d over the first half of the year. The increase in stocks has been offset by a 300,000 b/d refined products decline over the same period � leaving 1.3mn b/d, some 240mn barrels � �seemingly missing.�

The CGES said it would be tempting to look to China�s stockpiles as a means of solving the problem, but there is a lack of data. It also said that weak tanker markets rule out widespread use of vessels for storage, although unsold Iranian cargoes are reportedly being held in the country�s own vessels. It said Iranian output could have fallen further or faster than the consultancy has assumed. It put Iranian output at 2.9mn b/d in June, the lowest since the end of the 1980s, and it referred to a report by Petroconsultants that put Iran�s July exports below 1.1mn b/d, �suggesting that production could drop to around 2.5mn b/d.�

It said some of the missing barrels have gone into filling new pipeline and storage infrastructure: Russia�s ESPO pipeline to the Pacific Ocean (1mn barrels); the UAE�s Habshan-Fujairah pipeline and storage tanks (combined total of 11mn barrels); and Saudi Arabia�s east-west pipelines and storage tanks at Yanbu' (21.5mn barrels), for a total of 33mn barrels. 

�This leaves a large volume of oil unaccounted for in the supply/demand balance,� the CGES said. �Much of it may have been stockpiled by Saudi Arabia to provide immediate surge capacity in the event of a supply disruption, but its appearance on the market under other circumstances would put oil prices under severe downward pressure.�

CGES Global Supply/Demand Balance (Mn B/D)

* Assuming zero stock change.

© Copyright MEES 2012.