Satellite Images Reveal Saudis May Be Lying How Much Oil They Have In Storage

Tyler Durden's picture

A little over a year ago, specialized satellite imaging company Orbital Insight which uses its proprietary imaging and algorithms to track above-ground oil storage, confirmed something we had alleged earlier in the year: that China was vastly under-representing the amount of oil it had stored in its Strategic Petroleum Reserve (with significant implications for prices). As we said last September "according to Orbital Insight, China had not only misrepresented how much oil it has stored, it has done so at a massive scale, with the real number dwarfing even JPM own estimate: the real amount of Chinese oil in storage, according to Orbital, was a whopping 600 million barrels as of May" an amount nearly 3 times greater than the official, at the time, number of 234 million barrels.

The resultant doubt about China's true purchasing capacity was one of the several factors that led to the subsequent swoon in oil prices which OPEC was unable to overcome until nearly a year later, when the market became increasingly confident that the OPEC strategy of eliminating excess inventory, was working and pushed the price of WTI and Brent to two year highs, above $57 and $63 respectively.

That confidence may not last, however, and the reason may be the same one as last year: Orbital Insights.

As the FT's David Sheppard writes, "while the oil market’s attention has been gripped this week by the corruption purge in Saudi Arabia and its tensions with Iran, from miles above the earth’s crust one company is highlighting a different kind of intrigue."  He is, of course, referring to Orbital Insight, whose analysis of Saudi crude inventories in recent months has thrown up an "interesting anomaly.'

One can call it an "anomaly", but a better explanation of what the company has done is to catch the Saudi kingdom in lying about its inventories. Here is the official narrative:

The kingdom, which has led Opec and Russia in co-ordinated output cuts since January, has for months been reporting to official agencies that its oil held in storage has been falling, which alongside lower production has been one factor that has helped propel Brent crude oil back above $60 a barrel.

There is just one problem: it's a lie: "Orbital’s analysis of satellite imagery suggests that Saudi Arabia’s above-ground tanks — whose floating roofs allow them to see when oil inventories are rising or falling by measuring shadows cast across the top of the tanks — have seen no real change in the past 18 months."

This, Orbital says, is interesting because before early 2016, movements in above-ground storage closely tracked the trend in Saudi’s official numbers submitted to the Joint Organisations Data Initiative that are crucial for traders and analysts trying to get a grip of the near 100m barrel-a-day oil market.

In other words, the Saudis did not always lie about their inventory - it's only recently that the nation decided to "pull a China" and misrepresent its true crude inventories... in fact, it only started as OPEC began aggressively jawboning the market to send the price of oil higher in the buildup to the Nov 2016 Vienna production cut agreement. In the process, OPEC's most important member would do anything to give the fake impression there is more demand, and thus less oil in storage, than there really was.

How much? Here's the FT's punchline: "While Saudi Arabia has reported to Jodi that its oil stocks have declined by about 70m barrels since early 2016, the Orbital analysis suggests the above-ground tanks have actually seen inventories rise marginally over the same period."

If confirmed, Orbital's startling allegation would imply that for much of the past two years, OPEC has been actively engaged in doing what it does best: cheating, not only the market, but also other cartel members, because if Saudi peers found out that Saudi Arabia was quietly warehousing tens of millions of barrels in excess oil to give the false impression of high demand, then everyone else would start doing it. Come to think of it, maybe they are...

Still, as the FT and Orbital point out, there are a few caveats.  For one, Saudi Arabia’s official storage numbers include oil held overseas, in key regional hubs. It also covers line-fill for pipelines and underground tanks that cannot be monitored by eyes in the sky.  These factors may account for why the numbers no longer seem to match up — though they do raise other questions. Orbital says that changes in inventory levels in above-ground domestic storage tanks are normally noticeable normally first as they are easiest to access. Saudi’s Jodi numbers and what Orbital can see through its algorithmic analysis of the satellite imagery had previously tracked each other closely.

“The floating tank data is the part that we think is most indicative of short-term changes in storage,” said James Crawford, chief executive of Orbital Insight. “The big question is why that no longer jives with the government data that shows a pretty big drop."

There may be another explanation and it has to do with keeping higher oil storage levels at home than abroad. As the FT explains, "the most intriguing suggestion for the shift is more strategic: Riyadh’s own concerns about rising tensions with its neighbours."

“[The] reason for no real deep stock draw in [the] kingdom will be mainly security related,” said Cyril Widdershoven, who runs the Verocy consultancy.

 

That suggests, he said, that Saudi Arabia is concerned enough about its deteriorating relationship with Iran, and to a lesser degree Qatar, to keep higher oil stocks at home in case of any disruption.

To be sure, with Crown Prince Mohammed bin Salman saying this week that Iran’s support for Houthi fighters in Yemen, and the provision to them of missiles capable of striking deep into the kingdom, constitutes an act of war, "it is certainly an intriguing theory", one which Shepperd writes that "at times of heightened tension between two of Opec’s biggest producers it is one the market may start tracking closely."

And while there is no definitive explanation for the inventory discrepnacy observed by Orbital, what makes this mystery especially intriguing is how polar opposite the two most likely explanation are in terms of oil prices: either Saudi Arabia is covering up the lack of demand and warehousing excess oil, which will eventually send oil prices sliding, or if the "security-related" explanation is accurate, then Saudi Arabia is indeed preparing for war with Iran, which once the shooting begins will send the price of oil into the stratosphere.

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wisehiney's picture

Highly deflationary.

TLT

HowdyDoody's picture

Saudis are trying to sell ARAMCO because:
<-- they know they are running on empty
<-- there are still bazillions and bazillions of barrels left

wee-weed up's picture

 

 

"Satellite Images Reveal Saudis May Be Lying How Much Oil They Have In Storage"

Hmmmm... sounds like they're getting ready for war.

secretargentman's picture

Governments lie. Its what they do. 

Escrava Isaura's picture

HowdyDoody: Saudis are trying to sell ARAMCO because:

They don’t have any more oil fields left. And their 4 oil fields are dying.   

Saudis desperately need higher oil prices. But the world cannot afford high oil prices.

 

hola dos cola's picture

Because... they so hope to buy aka pull in allies.

They are floating down shitcreek and they know it.

peddling-fiction's picture

WW3 will need lots of energy.

BennyBoy's picture

 

Mafia Arabia is fighting Iran, Qatar, Yemen and Lebanon.

Sounds like the USA of the ME.

peopledontwanttruth's picture

And it will be revealed in the splitting of the atom

Two-bits's picture

It was the fault of all these corrupt princes. Not to worry, we can adjust numbers now that the corruption has been removed.

 

Dickweed Wang's picture

Jim Willie has been saying for at least a couple of years that the Saudis have been lying their asses off about their in-ground reserves as well.  According to him many of their historically highest producing wells are now pumping 95% brine/5% crude.  Willie has been right far more often than he's been wrong and this story seems to confirm that they are liars at least at some level about their oil.

Freddie's picture

Their biggest oil field is Ghawar and it is probably 60 years old and is dying or dead.   Yeah I heard they are pumping seawater in the wells to keep the pressure up.  Ghawar is the biggest field that contributes most of their oil.

I think the Saudis must be in big trouble and the oil fields are dying.  I thought that when they started the genocide in Syria and Yemen.  f F the Saudis,

Hope Copy's picture

On good authority, by the early 2000's that field had been fracked more than twice..

Dickweed Wang's picture

Yep . . . Willie has also maintained all along that the Saudi offensive against Yemen is about stealing their undeveloped oil fields due to their own declining reserves.

Oracle of Kypseli's picture

Logic will lead you to believe that if fields are drying up in general around the world, prices will be going up.

Unless only the fields in RSA are drying up, hence extraction price is mush higher than spot price 

hola dos cola's picture

The Saudis are building (and buying interests in) refineries all over the world.

The biggests consumers in the world are buying assets aka crude in the ground like crazy.

 

Chew on that for a while.

peopledontwanttruth's picture

Probably why they confiscated all those billions in their purge, guess it sucked pulling the short stick in deciding who got to go to heaven to get their 72 virgins.

Oracle of Kypseli's picture

Some of these princes have more than 72 virgins without leaving the earth.

bruno_the's picture
72 virgins.. Where are the Satellite Images?
NoPension's picture

My first thought, at the end of the essay....
A war with all those above ground tanks of oil would not seem like such a good idea..

nmewn's picture

...unless most of them are empty ;-)

PeeramidIdeologies's picture

Hey nmewn ol'boy,
Gotta simple question for ya. I know you schmooze about the joint here, is it Your crowd has this little infatuation with me? Or is someone getting really fancy with their tech these days?
If it is you guys I'll help you get over it. But if it isn't then I'll keep it moving as this seems to be getting awkward for everyone.

Cheers bud, sorry I didn't take my boots off.

nmewn's picture

"Hey nmewn ol'boy,
Gotta simple question for ya. I know you schmooze about the joint here, is it Your crowd has this little infatuation with me? Or is someone getting really fancy with their tech these days?"

I have no idea what you are talking about, I don't have (nor have ever applied for) contributor status and I'm definitely not Sacrilege in disguise, surfing across the world wide wave servers that actually feed this place...lol. 

Could it be, operator error, perhaps? ;-)

PeeramidIdeologies's picture

Much appreciate. Definitely not.

Hope Copy's picture

Water waiting for detergent recovery..

PeeramidIdeologies's picture

In case you haven't noticed it's ALLLL a lie. You think the Saudis are the only ones?! Haha JFC...

So what's it going to be this time zh??
You wanna fight about it?
You wanna cry about it?
You wanna love about it?

Or maybe you just want to talk... er tell me about it?! Haha

As usual I'll be waiting on you

Robert A. Heinlein's picture

Oil is the biggest commodity trade in the world by magnitudes over the rest combined. And it is the most manipulated.  Go figure. Follow the money. 

red1chief's picture

Whatever the Saudis are lying about, at the end of the day oil prices are set by the banksters. Since 2004 they have kept prices lower to hurt mainly Russia, but Iran and Venezuela also.

Anarchyteez's picture

Absolutely!

+++

And in turn PM’s.

SilverDOG's picture

Absolutely absolutely !

 

Oil to PM is the EROI.

Chart it up and see the dance.

 

Hope Copy's picture

With fracking, the detergents could make the homogenized solution take quite a while for the water to separate out, so how much of that in the tank is really water?

deev's picture

Won't be long before you can't GIVE oil away. Electric car adoption will kill the market for oil.

SilverDOG's picture

.....and everthing will be manufactured with sea grass and lichen, not.

What do you own that is not made from or with petroleum parts and energy ?

Population still rising and everybody wants.

rubiconsolutions's picture

Yeah sure. Because electric cars are powered by unicorn shit. What an idiot.

Pernicious Gold Phallusy's picture

Transcendental Meditation teaches people to levitate, so we won't even need the cars.

Grandad Grumps's picture

Why would the Saudis lie?

ROFLMAO!!!!

buzzsaw99's picture

i have no doubt china has more than they say but as for the ksa i am wondering if that is 100% crude in those tanks.

tuetenueggel's picture

Tell me if you find out that its whiskey.

slipreedip's picture

My takeaway from that article is:

The Chinese have far more oil than they are letting on ( as with gold).

Enough so that they can influence the Saudis and the oil price globally.

Just like they have lots of US debt, so they can influence the US.

Just like they do with commodity prices and countries like Australia.

Dont think they dont know what they are doing.

tuetenueggel's picture

Know why Fed is rising rates ?

China want it that way, to earn more for their shitty $ - treasuries.

One of We's picture

My grandpa used to fly all over the southwest and he said that the floating tanks were chock full during the '70's "gas shortage."

peopledontwanttruth's picture

I know somebody who worked in oil in the 70s during the oil "shortage", he said as soon as the price jumped to where they wanted it, he was sent back to the refineries and opened up the same valves he was ordered to shut off before the "shortage"?

Everything is MANipulated

Is-Be's picture

Everything is MANipulated

Go Sophia!

Her intelligence already surpasses most of humanities.

tuetenueggel's picture

Saudi and US intelligence you mean ?

Then you´re right.

Son of Captain Nemo's picture

Well... If anyone knows how much oil in storage the towel heads are "hiding"... It's Rex Tillerson and the CIA!!!

peopledontwanttruth's picture

KSA is trying to get a war started with their Jewish banker buddies and the corruption from DC before the dollar dies and everyone hears the giant sucking noise coming from their empty wells. They with the Zionist banksters need war to keep the gig up. Worthless paper and dry wells.

Sounds like there's a new sheriff going to be coming to town and they all know it.
War is inevitable because none will go quietly into the night