O.T. - something regarding "everyone" knows the price of crude oil has been strong lately (and conveniently ignore the fact that pretty much every other commodity on the face of the Earth has been plunging in price for several years now) -- an article from the current Barrons on the crude oil inventory data.
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.
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