Global oil production: Glut Nuts Have No Clue
While I happily and diligently sneer at the media for presenting distorted energy-related stories and headlines designed to excite at the expense of adding confusion, occasionally the media helps me out by ridiculing themselves. They do it without trace of irony or embarrassment, either of which qualities would be appropriate and/or welcome. But I don’t mind, it gives me cheap laughs and a reason to climb on my virtual soapbox. No one else will. (Side note: It is mindboggling that few other independent commentators care to hold the media to account for these beastly displays of willful yet mindless obfuscations. Look how angry I am, going all purple and multisyllabic. Shame on you media.)
The current craze in energy headlines reflects a non-stop tide of permutations of the words “oil”, “production”, and “glut”. Any reference to a reported build in inventories, whether at the semi-mythical Cushing Oklahoma or your neighbor’s gas tank, causes the media to drag all three of those trendy arrows from the quiver, frantically and fruitlessly trying to rearrange them in a new sequence that might shock the dull witted masses. A mid-May Google search yields these page 1 headlines: “Oil Glut to Worsen?”; “Global Oil Glut Grows to 2 million barrels a day”; “Oil Glut Worsens”; “Facing New Oil Glut, Saudis Avoid 1980s mistakes…”; etc. I think People magazine even had a story about Angelina Jolie adopting stranded barrels.
One headline stood out though, asking an important question that the data begs an answer for: ”How do you lose 100 million barrels of oil?” In the article, the author points out that global oil supply and demand are really wild estimates. For example, no one really has a clue what global production truly is, with the sort of precision that we think. Tiny changes make big headlines, but the changes are so insignificant compared to the error bars on numbers we think we understand. That fact becomes obvious with even a quick look at the source data. Most estimates of current production levels, the numbers that drive headlines, are estimates based on old data or based on pure guesses. Many nations that produce oil have ineffective documentation systems, or are secretive and don’t share true information. Either way, the guesses become facts once they become headlines.
It’s not hard to see where the leap comes from. The bulk of industry analysis happens in North America or other jurisdictions with very good record keeping. We know with a fair degree of certainty how much oil is produced in California or Alberta at any given time, and the numbers are highly scrutinized. So the natural tendency is to either assume the rest of the world does the same, or to utilize the massive analytical capabilities of energy industry watchers to ferret out the facts. But that tactic is fraught with difficulties and gaps you could drive a truck through.
For example, some Middle East production is estimated by the number of tankers that are loaded at certain facilities in the region. But those amounts don’t necessarily have anything to do with current production; they could be volumes that were stored in tanks somewhere long ago. Analysts make the assumption that they can estimate these things in secretive countries like China, but the size of the error bars on those numbers should be obvious to even the dimmest ungulate.
And according to the article, estimates of consumption are even worse. There are countless small storage tanks (including gas tanks on cars) that may be in any state of fill, and no estimate is made once fuel leaves the refinery (numbers which form a proxy for consumption). The difference isn’t trivial when one considers storage facilities for transportation companies, service stations, etc. that could hold, in aggregate, large quantities of boom boom juice.
So, as usual, don’t fret too hard about the headlines of gluts, surpluses, or shortages that are within a few percentage points of global totals. We seem to have enough oil these days, probably.