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Prices will be ‘whipsawed’ as output data emerges: Barclays
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Oil held in storage is ‘key unknown’ for analysts: EIA
The promise of production cuts from OPEC and its partners sent oil rallying in 2016. Now traders want proof they’re delivering on those vows. It won’t come easy.
The challenge: Building a coherent picture from the morass of data that emerges at each step along the process, from the wellheads where the oil is produced, to the tankers that carry it, and the depots that store it.
Unlike in the U.S., where output is published weekly, members of the Organization of Petroleum Exporting Countries can take months to disclose their production. Beyond that, their data can be at odds with independent surveys, and countries have been known to cheat on such deals. With a rising U.S. rig count offering a bearish undertone, each new hint on the accord’s implementation can be expected to swing prices.
"The market could be whipsawed more by data and headlines than in the past," said Michael Cohen, head of energy commodities research at Barclays Plc in New York, in a telephone interview. "Data lags will be the primary problem in tracking cuts."
Brent crude, the global benchmark, has surged 22 percent since Nov. 29, the day before the deal was sealed among OPEC’s members. The grade was trading at $56.62 a barrel at 4:03 p.m. in London. Future price increases for crude will depend on a wide variety of signposts. Here’s a breakdown on what to look for:
1. Upstream
The first indications will come at the start of next month, when media outlets such as Bloomberg, Thomson Reuters and Platts publish surveys of production. Estimates from institutions such as the International Energy Agency and U.S. Energy Information Administration arrive a week or two later.
As “no one’s counting barrels at Abqaiq,” the Saudi oil-processing facility, these have to be modeled on computers, Barclays’ Cohen says.Brent $56.39 -0.50
“While we consider official production data published by OPEC governments, we come up with our own estimates,” said Lejla Villar, an analyst who estimates OPEC output at the EIA, part of the U.S. Energy Department. “We look at crude oil loadings, estimated domestic consumption and refinery runs, storage, and whatever else might be relevant.”
OPEC won’t publish production levels until the middle of next month. Even then, the waters will be muddied as the organization provides two sets of data: the one used to monitor the agreement, compiled from the surveys described above, and numbers submitted directly by member governments, which can differ significantly....MUCH MORE
WTI $53.40 -0.36
