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MarketBeat (WSJ Blog) – Mark Gongloff: Those Amazing Shrinking Oil Exports
As crude oil slumps despite an Energy Department report of surprisingly weak inventory growth, it’s worth revisiting the must-read story today from Neil King about a key factor that had been driving oil prices into the troposphere: the fact that the world’s biggest petroleum exporters are increasingly keeping the stuff at home. As the story notes, last year was the first time that the majority of the world’s top 15 net exporters experienced shrinking exports. Total net exports from this group, which provides about 45% of the world’s supply, fell by nearly a million barrels per day in 2007.
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BusinessWeek – Help from the House of Saud
Why the leading oil producer wants to cool off the market
The Saudis, the world’s largest oil exporters, are as stunned as anyone by black gold’s rocketlike rise in price. Just a decade ago, Saudi Arabia nearly was brought to its knees by prices averaging $14 a barrel. While their coffers have since filled to overflowing, the Saudis worry about the impact of $130-per-barrel oil on their customers’ economies as well as the opening that high prices are giving to alternative fuels. “We don’t like it,” says a Saudi source, of the recent, fevered market. The Saudis want to cool the red-hot oil market and are investing heavily in new fields to meet future demand. They already plan to increase production by 300,000 bbl. per day in June, to 9.45 million bbl. This decision is more a response to customer orders than to President George W. Bush’s recent pleading for more oil (the government of King Abdullah sees Bush as a lame duck and believes his Iraqi foray has been a disaster). In a move that’s as much psychological as practical, the Saudis also are telling customers they will supply them with all the oil they want.
Comment The Wall Street Journal says Saudi production of crude oil is declining while Business Week, citing the Saudis, says it is rising. Which is correct?
The answer might lie in this interesting 2005 interview with Matt Simmons:
One of the more intriguing stories in “Twilight in the Desert’, Simmons’ new book on the state of Saudi fields, is paucity of reliable data on Middle East production in general and Saudi production, specifically. Simmons is one of the first people to point out the fact that much of the data underlying “official” production numbers are unreliable, based largely on the findings of Petrologistics, a “powerful” information collecting company located over a supermarket in Geneva, Switzerland.
According to Simmons, this company is usually the first one the media “glums” onto each month when the latest Middle East production numbers are released. This data, he alleges is gathered from a worldwide network of harbor “spies” located in the world’s top oil export countries.
“They look through a pair of binoculars and a sort of a gauge in their windows to check [tanker] plumb lines as to how much oil is being loaded into the tankers. And [Conrad Gerber’s] story is he can’t disclose the names of his harbor spies; he can’t even call them at home because when he used to do that, one of them got killed.
What’s interesting is that there are twenty other people… sources that report Middle East oil, but they all seem to get their first data from Petrologistics. And again, no one has ever basically questioned, Well how does he get that data?” Simmons explained. He pointed out the obvious problem that even with harbor spies using binoculars and plumb lines, there is no way to know the grade of the oil and how much being pumped aboard the vessel or its ultimate destination.
“You have no idea if its 1.8 million barrels or 2.2 million barrels. You have no idea where the tankers going,” he said. “But again, no one ever thought about where this data comes from.
“We have an energy data system created today that is simply rubbish.”
So let us repeat, there is no independent verification of crude oil supply. The world relies on a two-person firm of Conrad Gerber and his daughter operating above a supermarket in Geneva, Switzerland and their network of secret harbor spies looking at ships through binoculars to determine world production. Petrologistics does not have a website.
If we pitched this as a Hollywood movie theme it would be rejected because no one would believe it!
Does the world take Petrologistics seriously? From a May 21, 2008 Reuters story:
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Reuters – (May 21, 2008) OPEC Oil Supply Rising in May: Petrologistics
OPEC has kept official supply limits unchanged at meetings this year, saying consumers are well supplied and has blamed factors beyond supply and demand for oil’s rally, such as the weakening U.S. dollar. Even so, the Petrologistics estimate suggests the 12 OPEC members bound by deals to set supply policy, all except Iraq, are producing 29.83 million bpd, more than their informal target of 29.67 million bpd. Petrologistics assesses OPEC supply, which excludes oil produced but sent into storage rather than exported, by tracking tanker shipments. OPEC itself does not issue timely estimates of its members’ output.
Could there be a more important economic statistic than world-wide crude oil production? Could there be a more imprecise way of calculating these numbers? If the number were completely made up, would it be any less accurate than this method?