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Slate.com – Yves Smith: Barrel Fever
Does anyone know how much oil there is in the world?
But oil is in a completely different category: It’s a strategic resource bought and sold internationally. Many countries, either by indifference or design, simply don’t provide reliable information. Price is a result of demand and supply; the Wall Street Journal recently explained why it’s difficult to get a handle on demand (subscription required). The supply side is just as tricky. The International Energy Agency, a premiere source of oil-related information, was caught off guard by the surge in oil prices, so it decided it needed to get a better grip on capacity. The IEA is only partway through a survey of the world’s biggest oil fields, yet says it expects to show a significant reduction in estimated reserves.
Comment How is world production really measured? The answer might lie in this interesting 2005 interview with Matt Simmons:
One of the more intriguing stories in “Twilight in the Desert’, Simmons’ new book on the state of Saudi fields, is paucity of reliable data on Middle East production in general and Saudi production, specifically. Simmons is one of the first people to point out the fact that much of the data underlying “official” production numbers are unreliable, based largely on the findings of Petrologistics, a “powerful” information collecting company located over a supermarket in Geneva, Switzerland.
According to Simmons, this company is usually the first one the media “glums” onto each month when the latest Middle East production numbers are released. This data, he alleges is gathered from a worldwide network of harbor “spies” located in the world’s top oil export countries.
“They look through a pair of binoculars and a sort of a gauge in their windows to check [tanker] plumb lines as to how much oil is being loaded into the tankers. And [Conrad Gerber’s] story is he can’t disclose the names of his harbor spies; he can’t even call them at home because when he used to do that, one of them got killed.
What’s interesting is that there are twenty other people… sources that report Middle East oil, but they all seem to get their first data from Petrologistics. And again, no one has ever basically questioned, Well how does he get that data?” Simmons explained. He pointed out the obvious problem that even with harbor spies using binoculars and plumb lines, there is no way to know the grade of the oil and how much being pumped aboard the vessel or its ultimate destination.
“You have no idea if its 1.8 million barrels or 2.2 million barrels. You have no idea where the tankers going,” he said. “But again, no one ever thought about where this data comes from.
“We have an energy data system created today that is simply rubbish.”
So let us repeat, there is no independent verification of crude oil supply. The world relies on a two-person firm of Conrad Gerber and his daughter operating above a supermarket in Geneva, Switzerland and their network of secret harbor spies looking at ships through binoculars to determine world production. Petrologistics does not have a website.
If we pitched this as a Hollywood movie theme it would be rejected because no one would believe it!
Does the world take Petrologistics seriously? From a May 21, 2008 Reuters story:
Reuters –
(May 21, 2008) OPEC Oil Supply Rising in May: Petrologistics
OPEC has kept official supply limits unchanged at meetings this year, saying consumers are well supplied and has blamed factors beyond supply and demand for oil’s rally, such as the weakening U.S. dollar. Even so, the Petrologistics estimate suggests the 12 OPEC members bound by deals to set supply policy, all except Iraq, are producing 29.83 million bpd, more than their informal target of 29.67 million bpd. Petrologistics assesses OPEC supply, which excludes oil produced but sent into storage rather than exported, by tracking tanker shipments. OPEC itself does not issue timely estimates of its members’ output.
Could there be a more important economic statistic than world-wide crude oil production? Could there be a more imprecise way of calculating these numbers? If the number were completely made up, would it be any less accurate than this method?