Take Oil Inventory Data With a Grain of Salt

US oil inventories are more or less known; those of others are a mystery.

There is an informative article over at Oilprice.com on the need for a critical eye when interpreting oil inventory reports. While this data can significantly affect spot prices for two crude oil benchmarks--West Texas Intermediate (WTI) and Brent--there are caveats. Essentially, there are concerns over the coverage and accuracy of these figures. Both these factors should make observers more vigilant.

Consider first that inventory data is largely US-based. Namely, the weekly series provided by US agency the Energy Information Administration (EIA). However, reports from others may indicate contradictory trends:

The EIA data releases are a tradition for the oil markets – the weekly publications spark movements in oil prices, whether up or down. But the tricky thing about international prices trading on these metrics is that they only encapsulate what is going on in the United States.

The markets know very little about what is going on in the rest of the world. As The Wall Street Journal notes in a July 24 article, countries such as China and Russia do not report data on their storage levels. In fact, there is very little transparency on market data in much of the world. “The data itself is so inconsistent,” Harish Sundaresh, portfolio manager and commodities strategist for Loomis, Sayles & Co., told the WSJ. “In countries like Nigeria, Brazil, Angola, it’s not trustable.”


There are a few other outlets that release data on oil trends. The IEA offers some data on stocks from the OECD, which encompasses North America, Europe, and other rich countries. The IEA data shows commercial stocks in the OECD rising by 13.5 million barrels from May to June, reaching a record high of 3,074 million barrels. So that data looks pretty depressing for oil prices.

Also, the Riyadh-based Joint Organisations Data Initiative (JODI), for example, compiles data from the IEA, OPEC and a few other agencies. Data from JODI shows that Saudi Arabia has recently begun reducing its inventories to meet both high levels of demand abroad and domestically. In another example, JODI data revealed a sharp drawdown in inventories in Nigeria, mostly due to the attacks from the Niger Delta Avengers on domestic production. Nigeria’s crude stocks declined by 78 percent between December and May, as outages forced the country to tap reserves in order to keep exports from falling. The JODI data provides some small semblance of bullishness.

Like a Humpty Dumpty of data, putting all of these sources together hardly produces a consistent or satisfactory picture of the world crude oil situation:

But with data from multiple sources, which often conflict with one another, is hard to put it all together. And as the WSJ notes, there isn’t data like this from Russia, China and other non-OPEC members. The lack of transparency makes it difficult to paint a clear picture of what is going on in the oil markets.

China, for example, is filling up its strategic petroleum reserve. When comparing imports to refining production, it appears that there is a surplus, meaning that China is stockpiling crude oil. But much of that is likely winding up in China’s SPR, not necessarily commercial storage. If the SPR fills up, and China dials down its imports, that could be bad news for global oil demand. But nobody knows because of the lack of data.

Bottom line: while more reliable US data is great, America is obviously not the world. Moreover, with different compilers of data using different methods of estimating reserves, you cannot assume that they use comparable measures to produce their data:

But the larger lesson is that oil price volatility is in part a symptom of a shortage of reliable data. The markets move up and down on incomplete and sometimes incorrect information. When the real trends ultimately emerge only months later, prices can react by moving quickly back in the other direction.