`Missing Barrels' Don't Explain Oil Rally, Says Morgan Stanley

  • IEA estimates around 800,000 barrels a day are unaccounted for
  • Recent oil rally driven by macroeconomic events, bank says

The 800,000 barrels a day of crude production unaccounted for in the International Energy Agency’s estimates of oil supply and demand for last year are a “poor explanation” for the recent rally in prices, according to Morgan Stanley.

The “missing barrels” -- which result from the difference between the IEA’s estimate of oil supply and demand -- are probably present in stockpiles outside the 34 members of the Organization for Economic Cooperation and Development, Morgan Stanley said in a note Monday. The proportion of global inventories in developing countries such as China, which aren’t directly monitored by the agency, should be growing, the bank said.

“Missing barrels are one of many oil-market myths cited by bulls,” Morgan Stanley analysts including Adam Longson said in the note. “The theory is that oil demand is understated because OECD inventories do not capture the full imbalance. However, just because you can’t see them, doesn’t mean they are not there.”

Brent crude, the international oil benchmark, has risen about 50 percent since hitting a 12-year low of $27.10 on Jan. 20. For Morgan Stanley, the rally is the result of macroeconomic trends -- notably the weakening dollar -- and other events such the potential for a production freeze when OPEC and non-OPEC producers meet on April 17.

In its monthly oil-market report, the Paris-based IEA includes a “miscellaneous to balance” section that lists the barrels its analysts haven’t been able to locate after taking account of supply, demand and the amount of oil placed into storage. That number was 800,000 barrels a day for 2015, “well within the normal range considering the vagaries of oil data,” the agency said in its March 11 report.

Chinese Tanks

“Part of these missing barrels ended in Chinese SPR tanks,” said Giovanni Staunovo, an analyst at UBS Group AG, referring to the nation’s strategic petroleum reserves. Tracking only OECD storage data was useful in the past when developed economies’ oil demand was larger than emerging markets, but that trend has since reversed, he said.

About 77 million barrels of SPR is in the process of being filled in China, with another 93 million barrels of capacity expected to be completed by 2020, according to BMI research.

The IEA can’t escape errors in data collection, Morgan Stanley said. “History shows supply and demand tend to be revised as data improves, with no clear pattern. Both have generally been revised up in recent years,” the bank said.

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