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

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.

Comments

Funn3r Nov 9, 2017 7:55 AM Permalink

Maybe SA is not lying. This company  Orbital Insight, it seems they are in the expensive business of operating satellites so they can sell the info. How come they are so conveniently giving away this particular piece of info for free?

VIS MAIOR Nov 9, 2017 4:34 AM Permalink

why trumpo junta can not start "sanctions on china "or hot war !  becouse less money (if chinese lower productions all..) less money for saudi is WIN WIN  for iran and russia or syria.weaknes for saudis is dangerous for usa/israel proxys also usa  weapons export - win win for russia iran becouse everything in this world  is reconnected ))) also if saudi decide No pay in juan .., chinese will more dependent on russia resources- win win for russia again EXPENSIVE  "War Theater"  will bring us to a ruin.. no pensions first) usa dnt have no money to rebuild p.rico .. they absolutely do not have resources on the world war(+no gold and people ready to war) brics will have billions to make turn over usa!! in ww3also local war in europe will quick end of nato and eu.. becouse people there are angry)) like in ww1 habsburgs 

Pernicious Gol… Nov 9, 2017 1:37 AM Permalink

Oh, my. What is going on here? In the nearly 50 years I've been reading about Saudis in the newspapers this is the first time anybody has suggested they might lie about something important to them. Anybody else remember the King Faisal lighted hood ornament in National Lampoon?

francis scott … Nov 9, 2017 1:45 PM Permalink

Okay.So I said that oil producers had every reason to lie about how much oil they had, when I first appeared at ZH in 2010.But I said that they would lie and say that they had more than they really have.  That would keep the boat from rocking.Plenty of oil as far as the eye can see.  No need to go into denial.  Our cup runneth over. Then as crude oil events seemed to indicate 'Peak Oil', the well-oiled propaganda machine in Washington went to work todisprove the posibility of peak oil.  Then we went to work liberating Iraq and Libya from the control by rulers who wereunfriendly to the West and did not produce crude oil as fast as we wanted them to.  Saddam and Gadffi actually thoughtthe oil belonged to their countries and not the Consolidated Oil Producers of Earth. Now Iraq is pumping it up faster and when the killing in Libya is finished so shall they.  Remember "Peak Oil"is a functionof both SUPPLY and demand.  The more that is pumped up, the further away "peak oil" is from our door. Then we had proof of the problems with deep water drilling with Deepwater Horizon. Not much drilling of risky deepwater wells since then. For a decade their have been rumors about the Ghawar running low. Then for two years Saudi hasonly been the world's largest producer every month or two.  Then the Aramco ipo.  Now an intramural fight between thePrinces of the House of Saud.  With the side backed by the US having arrested those who object to the US control of Saudiproduction and want to maintain SA independence.   Remember that the US, to punish Russia for Crimea, had Saudi engage in uncontrolled pumping to drive down theprice of oil and cut Russia's oil income.  So just as the Saudi fields were shrinking in 2014, Obama made themdouble their production and then GIVE THAT OIL AWAY ON THE FREE MARKET. But not to worry, denialists.  The Saudis are just lying about running low.  The lies of Washington's propaganda machineare getting so outrageous, they're fun. Not to worry, we just live in interesting times.         

Is-Be Nov 8, 2017 10:46 PM Permalink

Nothing was put into context.How much demand was there for oil? If oil demand had fallen, then indeed the Saudis would have cut back and the levels in storage would have remained the same.Read "Thinking in Systems" by Prof. Donnella Meadows.

peopledontwanttruth Son of Captain Nemo Nov 8, 2017 9:17 PM Permalink

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

In reply to by Son of Captain Nemo

slipreedip Nov 8, 2017 8:48 PM Permalink

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.

Hope Copy Nov 8, 2017 8:21 PM Permalink

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?

red1chief Nov 8, 2017 8:13 PM Permalink

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.

PeeramidIdeologies Nov 8, 2017 7:55 PM Permalink

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

PeeramidIdeologies nmewn Nov 8, 2017 8:14 PM Permalink

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.

In reply to by nmewn

nmewn PeeramidIdeologies Nov 8, 2017 9:18 PM Permalink

"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? ;-)

In reply to by PeeramidIdeologies

Dickweed Wang Nov 8, 2017 7:52 PM Permalink

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 Dickweed Wang Nov 8, 2017 8:16 PM Permalink

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,

In reply to by Dickweed Wang