Sam Fletcher
Senior Writer
Fear that the Organization of Petroleum Exporting Countries would undersupply peak market demand for crude in July and August increased the price at which refiners were willing to draw down crude stocks and inflated oil prices in June and July, the International Energy Agency in Paris said in its Aug. 10 monthly report.
Therefore, said IEA analysts, prices remain high and crude futures markets "have been toying with backwardation"—in which futures prices for near-month contracts exceed those of farther-out months—despite high levels of crude stocks among countries of the Organization for Economic Cooperation and Development at the end of June. The September contract for US light, sweet crudes closed at a record high of $78.21/bbl July 31. By Aug. 10, it closed at $71.47/bbl.
Data problems
However, IEA complained: "With the limited hard data to hand, there is still a wide margin for interpretation of current and future fundamentals. We have weekly data for the US and Japan, but to get a preliminary picture of the OECD takes 6 weeks." Outside the OECD, it said, "there is still very little information on stock levels."
Although some countries are struggling to establish data collection systems, most are monitoring stock levels at ports, loading terminals, and refineries. "Many (if not most) companies probably have the ability to report these data on a real-time basis. So why the lack of data?" IEA wondered.
IEA reported two common answers to that question. "Some non-OECD officials have indicated that several years of high prices have led the industry to run on minimal stocks, and they worry that if they release this information, they might push oil prices higher than they already are. That is the easiest issue to address: do not worry—the market already implicitly assumes they are zero," it said.
The second argument is that stock data are commercially sensitive. "That may be the case, but keeping it secret has scarcely led to consumers paying less, and the US and Japan show [timely reports] can be done. US regulations are generally very responsive to industry's needs, yet the comprehensive weekly data published by the EIA demonstrate that commercial sensitivities can be overcome," IEA said.
"This is not just about data coverage. It is also about the timeliness of data. In the OECD, weekly European data are conspicuous by their absence (even China and Russia industry publications provide some weekly data!). While there are some genuine concerns in Europe about cost and quality of the trade data available, some of the often-heard arguments against the publication of more frequent data fail to see the bigger picture."
Some statisticians claim data quality deteriorates if produced more frequently. Others are more willing to accept less accurate but more timely information. "Weekly data are less accurate than monthly data; monthly data are less accurate than annual." But data quality improves when collection is regular and subject to continual assessment. "It is also wrong to interpret the focus on the US weekly data as a sign that more timely data increase market volatility," IEA said. "Experiences in other commodity markets show that it can have the opposite effect."
IEA argues that more-comprehensive and more-frequent data improve market understanding. If that knocks several hundredths of a cent off the price of each barrel of traded oil, it would be more cost-effective than the current situation, where "uncertainties associated with a lack of data could bear a much higher cost," IEA said.
Furthermore, the agency argued that traders' usual focus on the high level of US crude and petroleum stocks as evidence that the market is well supplied ignores the low level of Japanese crude stocks and the average levels of European inventories at average levels. In term of future demand, IEA said, "These stocks are below normal, and logic suggests they may be even lower from a global perspective. Our projections suggest stocks will be drawn down further in August and September, yet when OPEC members come to assess the market at their Sept. 11 meeting, they will have to hand only OECD data from June. If ever there was a compelling argument for the benefits of wider and more frequent stock data coverage, it is now."
US inventories
US crude inventories fell 4.1 million bbl to 340.4 million bbl in the week ended Aug. 3. Gasoline stocks dropped 1.7 million bbl to 203 million bbl. Distillate fuel inventories rose 1 million bbl to 127.5 million bbl.
(Online Aug. 13, 2007; author's e-mail: [email protected])
