Global Oil Markets

[dan_s]

Interesting report I received from one of the top energy sector analysts at Morgan Stanley.

Crude Oil: How Oversupplied Is The Oil Market? The Answer Might Surprise You
Adam Longson, CFA, CPA – Morgan Stanley
November 12, 2015 1:54 AM GMT

Traditional oil balances overstate the magnitude of oversupply. Consensus oversupply estimates are largely overstated - ranging from 1.5-2.5 mmb/d based on long standing and often flawed methodologies. By our estimates, the average 2015 oversupply is only 0.7-1.0 mmb/d. To be fair, any degree of oversupply is negative. Until supply shortages begin to manifest, the perception of a large disconnect may continue to cause the market to look through otherwise positive events as too small to rebalance the market. However, the smaller starting point is important when considering the timing of recovery, while overstating imbalances could lead to an overreaction and setup a larger/faster recovery.

The difference in oversupply figures is driven by three primary factors:
1) Differences in the calculation used for measuring oversupply; 2) A failure to account for natural seasonal dynamics, stock changes and working stock; 3) Fundamental flaws in the construction of traditional oil balances.

There are numerous ways to calculate oversupply, but most fail to consider normal stock changes and seasonality. Determining "oversupply" is more complex than it might appear. Most calculations compare supply vs. demand or the Call-on-OPEC+stocks vs. OPEC production. However, these metrics overlook normal seasonal stock changes - or the stocks in the Call-on-OPEC+stocks . Failing to do so is like getting excited about natural gas draws in winter, even though they always draw in winter. Instead, we compare global demand and supply and net out avg implied stock changes to account for seasonal effects and natural inventory growth with demand. Even this metric fails to consider SPR builds or other factors that can swing the balance beyond historical averages.

The standard global "oil" balance is not a crude oil balance and has many fundamental flaws, in our view. Traditional "oil" balances are really quasi-product balances and rely on several inaccurate simplifying assumptions.

[bigtex]

it sure seems the markets are telling us this glut of oil is not ending soon.. so many conflicting reports out there

[dan_s]

See this: https://tudor.na.bdvision.ipreo.com/NSi ... 5199110585

TPH Thought of the day – Missing barrels…or why the market is tighter than you think – The attached file (at link above) and video research highlights why we believe oil prices will be materially higher in 2H’16. The fundamental difference between our view and consensus is the forecast starting point...after accounting for the "missing barrels" in the IEA data, we judge the global oil market is nearly balanced today (detailed discussion in the research video) and not significantly oversupplied (consensus). The IEA releases their monthly Oil Market Report this Friday, and we expect Q3 inventory data and OPEC production for October to be the focal points of the release.

Link to video: https://vimeo.com/145236378

[dan_s]

OPEC’s monthly Oil Market Report (OMR) released today showed the group’s production was down slightly to 31.38 million barrels of oil per day (MMBOPD), 256,000 barrels per day lower than in its previous OMR. The group is still producing in excess of its self-imposed 30 MMBOPD production mark as we approach the one-year anniversary of OPEC’s decision to maintain production instead of defending crude oil prices.

The largest portion in the drop seen in OPEC’s production over the last month came from the group’s second largest producer, Iraq. Based on information from “secondary sources,” OPEC said production from Iran fell by 195.4 MBOPD to 4.1 MMBOPD. While the report didn’t specify a reason for Iraq’s decline, storms have disrupted loading at Basra oil terminal in the south of the country and sabotage attacks have reduced flows through the Kurds’ export pipeline in the north, reports Bloomberg.

The rest of OPEC’s November OMR should relatively little change from last month’s with the group leaving many of its predictions unchanged ahead of its December 4 policy meeting. World oil demand growth was left unchanged at 1.5 MMBOPD in 2015 to 92.86 MMBOPD, and 1.25 MMBOPD in 2016 to 94.14 MMBOPD. Supply changes were also left the same from October’s OMR, with Non-OPEC supply estimated to average 57.24 MMBOPD in 2015 and 57.11 MMBOPD next year.

[bearcatbob]

And yet the news this week is about an "ocean" of oil coming from Iraq. One of these stories is not right.

[par_putt]

Hey Dan, look out your window.
Do you see any tankers. Is it true?

http://www.zerohedge.com/news/2015-11-1 ... -galveston