OPEC muddies waters with conflicting oil production estimates

OPEC has made it even harder to calculate the global supply/demand balance by publishing two differing estimates of crude oil production by its member states. Those are among the most important pieces of data impacting the oil prices.

Right now they have added significance because of the climate of uncertainty surrounding Iran’s oil exports. So it was particularly interesting that OPEC decided, for the first time, to publish two estimates of its production in its own monthly oil market report in April.

The first estimate is the one it has always used, and is based on estimates compiled by a number of defined ‘secondary sources,’ including Platts. The second set of numbers given out by OPEC comprised submissions given directly to OPEC by its member countries.

What is interesting is quite how far apart these two sets of numbers are. For February, for example, the official OPEC estimate based on secondary sources says the group as a whole pumped 31.176 million b/d, which is almost 1 million b/d lower than the figure derived from the direct member country submissions of 32.107 million b/d.

For March, there was no overall total given for the direct submissions due to no figures coming from Algeria or Ecuador. But the numbers still showed some major differences between what some countries are telling OPEC they are producing and what the secondary sources are estimating.

In the case of Iran, for example, the secondary source estimate for March was 3.348 million b/d, down slightly than February and perhaps a sign that the EU and US sanctions against the country are having an impact on production. Iran’s own submission to OPEC, however, was 3.755 million b/d, more than 400,000 b/d more than the secondary source estimate.

Venezuela, another country where production estimates have been a controversial issue in recent years, told OPEC it produced 2.824 million b/d in March, more than 440,000 b/d higher than the secondary source estimate of 2.378 million b/d.

Similarly, Kuwait’s direct submission of 3.031 million b/d for March was 333,000 b/d higher than the secondary source estimate of 2.698 million b/d.

In most cases, the direct submissions now revealed by OPEC match what the individual member countries are reporting to the JODI oil database, launched in 2001 to promote transparency in oil market data.
JODI has certainly helped in the sense of making more data visible to the outside world. But in some cases, and particularly in the case of OPEC production, that doesn’t necessarily mean we are any nearer knowing which of the many numbers out there is the right one.

In most cases, you might expect data reported first-hand from the primary source to be more valuable than an estimate from a secondary source. But it’s not that simple with OPEC, where member countries themselves have seemed reluctant to trust each others’ data reporting.

This lack of trust explains why it is the secondary source numbers which have been used by OPEC in recent years as the baseline levels for its critical crude production agreements. Every time the group wants to establish how much crude it is really pumping, and give its agreements much-needed credibility in the marketplace, it uses the secondary source numbers. 

So why has OPEC published the other numbers? Could they be an attempt by OPEC, or at least some of its members, to tell the world it is doing its best to increase production in the face of high oil prices? Or could they be an attempt by some individual countries to counter what they see as inaccurate (and low) estimates of their production?

If the higher numbers were believed by the market, the reappraisal of OPEC’s production could have a potentially bearish impact on prices, which in turn could affect government revenues and investment decisions in new oil and gas projects around the world. But for that to happen, the market would need to be convinced of the credibility of the direct submissions from OPEC countries, and on score it looks like there is a long way to go.

Richard Swann for RT

Richard Swann is the managing editor of Platts oil and gas news in Europe, Africa and the Middle East. http://www.platts.com

Disclaimer: ­The views and opinions expressed in the story are solely those of the author and do not necessarily represent those of RT.

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