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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: VLAD who wrote (30542)	10/9/1998 3:05:00 PM
From: J. Fred Donham	Read Replies (3) \| Respond to of 95453

Friday October 9, 12:07 pm Eastern Time Company Press Release SOURCE: Independent Petroleum Association of America IPAA Endorses Sen. Domenici's Request for a GAO Study of Oil Production Forecasting WASHINGTON, Oct. 9 /PRNewswire/ -- Statement by Independent Petroleum Association of America President Gil Thurm on Sen. Pete Domenici's request to the U.S. General Accounting Office to examine the International Energy Agency's (IEA) forecasts of worldwide supply and demand for oil during 1997 and 1998: IPAA applauds Sen. Domenici's (R-N.M.) request for a General Accounting Office (GAO) assessment of the International Energy Agency's (IEA) worldwide oil supply and demand forecasts. These forecasts appear to be an important influence on the commodity markets. IPAA staff and outside expert analysts have reviewed these forecasts and found signs that they may be overpredicting worldwide crude oil production. If such inaccuracies exist, the consequences could be significant. For these reasons, IPAA believes that it is reasonable to ask for a thorough assessment of the IEA forecasting process. If IEA's forecasting tool is flawed, then adjustments should be made quickly. According to IEA data, world oil supply should be exceeding demand by 3.4 million barrels per day during the second quarter of 1998. However, the IEA estimates that only 1.8 million barrels of oil per day have shown up in inventories. That leaves 1.6 million barrels of oil per day missing. Yet the excess crude reported by IEA has yet to show up in its reported petroleum inventory estimates. IEA in an April edition of its Oil Market Report, noted that an ''arithmetic mystery'' had occurred. This mystery has yet to be solved. In its September report, IEA noted that revised numbers in its most recent data were showing an increasing ''...discrepancy between the aggregate oversupply and observed stock changes.'' Moreover, in a September Commodity Market Trends report, Merrill Lynch stated, ''Our current model for the global oil balance -- which uses recent historical IEA data as a guide -- suggests that inventories should simply be much, much higher than the current level. This is an important divergence, in our opinion, which will require careful monitoring.'' If the information IEA is providing is inaccurate and being used by oil traders and analysts without careful scrutiny, the misuse of information can lead to an over-assessment of oil production. If IEA predictions are not accurate, and the magnitude of oversupply is much less, the market might very well have reacted in a different way the last 11 months. Oil prices might not have seen their precipitous drop from where they were one year ago. IPAA believes the implications are far too serious and raise too many troubling questions to go unanswered. IEA's ''missing barrels'' problem is significant because it calls into question the accuracy of the most relied upon worldwide petroleum statistics. If the barrels of oil are missing because there is a flaw in the forecasting process, we could then be confronted with tighter inventories and shortfalls if demand is being underestimated, or supply is being overestimated, or both. We believe that finding the ''missing barrels'' is essential to ensure that energy decisions affecting worldwide economies are based on an accurate understanding of the data. IPAA members have been severely affected by current oil prices. The belief that oil production is too high for the market when demand growth is slowing has lead to reduced production and exploration budgets, the shut down of wells, delays in maintenance, and industry layoffs. More broadly, the collapse of the oil market has had a serious effect on the economies of emerging exporting countries, countries that rely on oil production for their principal income. These reasons argue for a review of the forecasting process. This is exactly what Sen. Domenici has requested and why IPAA supports the effort. SOURCE: Independent Petroleum Association of America