When it comes to "real-time" measurements of crude demand and supply, the data is notoriously bad (and perhaps, according to some, intentionally manipulated). We pointed this out most recently in early March when we that according to IEA data, crude oil production exceeded consumption by an average of 0.9 million barrels per day in 2014 and 2.0 million bpd in 2015. Of this 1 billion barrels which the IEA said was produced but not consumer, some 420 million are said to be stored on land in OECD member countries and another 75 million can be found stored at sea or in transit by tanker somewhere from the oil fields to the refineries. This means that as of this moment, about 550 million "missing barrels" are unaccounted for "apparently produced but not consumed and not visible in the inventory statistics."
However, it is not only data at the annual level that is flawed: monthly, and especially weekly data is just as, if not even more distorted. In fact, as Bloomberg's oil energy analyst Julian Lee asks, "could it be that the U.S. demand that's helped drive a near doubling of oil prices since mid-February was illusory?"
Lee is referring to a major discrepancy in DoE reporting which through the Energy Information Administration, produces two sets of U.S. demand data that drive sentiment and influence trading. The first shows monthly figures. They're two months out of date, but they give the most accurate assessment of what's going on in the world's largest oil-consuming country.
The second set of numbers come out each Wednesday, giving preliminary estimates for the previous week. For crude markets these weekly figures - though less reliable - are arguably more important, largely because they're bang up to date.
As Lee puts it, "It's the discrepancy between the two sets of data that gives cause for concern."
He adds that "when taking the weekly figures, it looks like U.S. gasoline demand is soaring. According to those data, it's been on a steady upward path all year, reaching a record high of 9.8 million barrels in the week ending June 17, with the summer driving season barely started."
But the latest monthly data, showing the numbers for April, paint a very different picture. They show U.S. gasoline consumption falling between March and April and imply a downward revision of April demand of 260,000 barrels a day, or 2.7 percent, from the preliminary figures. That might not seem a lot. But when the same agency forecasts that U.S. gasoline demand will grow overall this year by just 170,000 barrels a day, it's enough to change the whole outlook for one of the few countries where demand is robust.
The problem isn't confined to gasoline. According to the weekly numbers, overall U.S. oil demand has exceeded 20 million barrels a day in each of the past three months and, like gasoline, is on a steady upward path.
Here, again, the monthly numbers show something very different. This time the revision is a whopping 800,000 barrels a day!
Strong U.S. oil demand growth, or at least the EIA's representation thereof, particularly for gasoline, has combined with supply disruptions in places like Canada and Nigeria to support the price rally. That recovery began in February when OPEC and other producers started talking about an output freeze.
The freeze never happened and the supply disruptions are easing. Canadian oil is coming back after the Alberta wildfires disrupted about 1.2 million barrels a day of production. The volume of output still shut in is now less than a third of the peak. Nigerian production is also returning, thanks to a ceasefire between the government and local militants.
So with the supply-side dynamics offering less of a prop to the crude price, more weight is being placed on demand. Yet analysts are becoming more pessimistic. Barclays has reduced its forecast of global demand growth this year to 1.1 million barrels a day from 1.2 million, after cutting its economic growth expectations because of the U.K. decision to leave the EU.
Last month, the World Bank lowered its forecast of global GDP growth in 2016 to 2.4 percent from 2.9 percent -- and that was before Brexit. With all this in mind, it's natural to look at the EIA's monthly U.S. data and wonder about the crude rally's robustness.
Finally, recall that according to JPM calculations, as much as 1.2 million barrels in "demand" is about to be taken out of the demand side of the equation since this was oil that China was importing to fill up its Strategic Petroleum Reserve, which is now near completion.
Which means that with Chinese demand growth about to tumble, it was all up to the US to provide the global demand boost. The problem, however, is that if indeed the EIA was overly optimistic in its weekly gasoline and crude demand estimates (or merely "cooking the books"), then once the monthly reality catches up with the weekly (fake) euphoria, the oil-trading algos will be slammed with a triple whammy of rising supply as Canadian and Nigerian production disruptions become a thing of the past, while surging Chinese and US demand is exposed to have been the result of one-time events and/or accounting gimmicks.
Last year, the big swoon lower in oil start in July/August. Since nothing has changed, and since even the central banks admit the global economy is now in far worse shape than it was a year ago, expect a similar repricing of the crude reality in the coming weeks.