Some old news with a little different spin in Monday's Barrons:
August 2, 1999
Slippery Numbers
Ample supplies belie tight oil inventory data
By Cheryl Strauss Einhorn
Is $20 oil sustainable? In the near term, the answer may be no, in part
because data portraying crude inventories as tight -- one of the main factors
driving up prices -- appear to be faulty.
The Department of Energy, which requires oil companies to report their
stocks of crude each week, says inventories for its most recent reporting date
in July are seven million barrels below year-earlier levels, while American
Petroleum Institute numbers show stocks down 10 million barrels from 1998.
Says Mike Conner, a DOE statistician: "We have been concerned about the
data that companies have been reporting for the last few months." David
Beinhacker, an API analyst, admits that "the numbers we publish are driven
by what is voluntarily reported to us. Even if a number looks funny, we
publish it."
But the DOE's Conner adds, "While we have straightened out some of the
problems, we still think we may be off by a couple of million barrels."
The data may be off by more than that. In a letter from George Coiner, the
senior vice president of Plains Marketing LP, written to the DOE on July 19,
Plains admitted underreporting its data by six million barrels. That would imply
crude oil inventories remain virtually unchanged from a year ago, only differing
by a mere one million barrels for the '98 period.
Coiner told Barron's that for two weeks this month, Plains erroneously
reported that its inventory at PADD II, where Plains owns three million
barrels of storage capacity and where the New York Mercantile Exchange
has its crude oil delivery point in Cushing, Oklahoma, was empty, owing in
part to a clerical error.
Given those mistakes, Coiner's letter further suggested the DOE "look at the
current reported numbers, because even with our corrected volume number,
the aggregate number for all reporting companies does not appear to compare
to what the total volume should be... based on our experience and our
position in PADD II."
"We have been full," Coiner says of his firm's storage facilities. As a result, he
thinks crude prices may have run up too far. "Cushing has a lot of crude. I
cannot even unload my barges in Louisiana," he observes, referring to his oil
tankers sitting at the delivery point for the Gulf of Mexico. "It is full, and we
are just backing them up."
Coiner adds that he is aware of some U.S. independent oil producers who
have restarted idled capacity recently. One company in particular just upped
its output 12%, he says.
And Coiner isn't alone in saying that crude stocks seem ample. Charlie Bell,
the coordinator of the Cushing Terminal for Equilon Enterprises, which
oversees seven million barrels of working storage, says "my facilities are full"
and that they have been "for the last 12 months. We've even had inquiries
lately asking us if we can take any more oil, but we just don't have room."
In addition, Bell says, his company isn't turning over its barrels any faster now
than it did a year ago. Demand hasn't changed. "Throughput at Cushing has
not gone up," Bell comments.
At Amoco, which controls eight million barrels, the largest single holding in
Cushing, "we're full, too," says a senior manager of storage. He says the
facility has been at capacity for the past four months. Before that, his tanks
were usually 75%-100% full. "The weekly crude oil inventory numbers just
don't make sense," he says, adding, "We're getting quite a number of inquiries
too, recently" from firms in need of more oil storage space.
As for Amoco's turnover, the manager says the barrels aren't moving. His
storage is owned by speculative traders who are "playing the contango," that
is, the premium built into futures prices that reflects the cost of storage.
All this means that oil prices could be vulnerable. Crude has run up 70% this
year without any real selloff. The rally has been propelled by supply-cutback
agreements among members of the Organization of Petroleum Exporting
Countries and other oil nations, such as Mexico. Hence, the market has kept
even closer tabs than usual lately on the inventory stats collected each week in
order to monitor just how much output actually has been cut.
Now that it is apparent the data that helped drive up prices are suspect, crude
is likely to reverse part of its run-up. Most of the net-long positions in the
market are held by speculators who aren't directly involved in the underlying
commodity. In fact, the speculative net-long positions are currently at their
highest level ever, pushing volume and open interest levels in the oil market to
new highs.
Commercial traders -- producers and refiners directly involved in the oil
business -- in contrast, are net-short, showing that they think prices are too
high. Right now, those oil-price bets look pretty slick. |
