Demand

IEA: High Oil Prices “Taking A Toll” On Demand

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Geopolitics has taken over the oil market, driving oil prices up to three-year highs. The inventory surplus has vanished, and more outages could push oil prices up even higher. Yet, there are some signs that demand is starting to take a hit as oil closes in on $80 per barrel.

In the International Energy Agency’s (IEA) May Oil Market Report, the agency said that OPEC might be needed to step in and fill the supply gap if a significant portion of Iran oil goes offline. Saudi Arabia suggested shortly after the U.S. announced its withdrawal from the Iran nuclear deal that OPEC would act to mitigate any supply shortfall should it occur.

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60 Reasons Why Oil Investors Should Hang On

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Inventories will continue to rise, but the momentum is slowing.
The following are some observations as to how we got here and how we’re gonna get out.
9 Reasons Why Oil Has Taken So Long to Bottom:

1. OPEC increased production in 2015 to multiyear highs, principally in Saudi Arabia and Iraq where production between the two added 1.5 million barrels per day (mb/d) to inventories after the no cut stance was adopted.

2. Russian production increased in 2015 to post Soviet highs.

3. Long planned Gulf of Mexico production began coming on in late 2015.

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More “Funny” Data from the Government

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In the past, I documented the overstatements by both the IEA and EIA in 2014 & 2015 in terms of supply, inventory and understatements of demand. Others also noticed these distortions and, whether intentional or not, they exist and they are very large in dollar terms. These distortions, which are affecting price through media hype and/or direct/indirect price manipulation, are quite possibly the largest in financial history.

Putting numbers behind it, with worldwide production running some 95 million barrels per day, and assuming $55 per barrel for oil, the market for crude oil is about $5.2 billion per day. Each $10/Barrel change is worth nearly $1 billion/day or $365 Billion/year for the worldwide crude oil market. Add the worldwide equity market caps of oil and oil related equities and debt you have a scandal that is in the trillions; a number that cannot be ignored.

According to Cornerstone Analytics, who have documented the IEA systematically underestimating demand in 2012-2013 only to revise it higher quarters if not years later, the EIA has created the appearance of an imbalance of supply by some 500 million barrels or $2.5 trillion in the last 5 quarters alone. This has easily swung oil by at least $20/barrel if not more.

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