OPEC is in a state of panic, as the downward trend in the price of oil shows no sign of abating. OPEC’s move to stem production has not managed to shift the market upwards and oil prices have seen a drop of 68 percent, since their record high in July 2008. While the gloomy global economic data is the primary reason for the inability of OPEC to push up the price of oil, the inability of OPEC to confirm the amount of oil their member countries are producing is also a major obstacle. This dilemma was illustrated at the recent OPEC gathering in Cairo where the market was expecting an announcement that oil production would be cut further. Instead OPEC was still striving to ensure previous production cuts had been carried out. The challenge of verifying whether production cuts — agreed to by its members — have actually been carried out or not is a near impossible task for the organization. OPEC is unable to deliver either accurate or timely oil production data with the figures that its member countries submit. Thus, it was a long time ago OPEC decided not to rely on its member country submitted oil production numbers but on ‘secondary sources’. This severely prescribes the effect OPEC is able to have on the price of oil.
For national security reasons, OPEC member countries guard information about their oil output as state secrets. The consequence of this is that the member countries are leaving themselves exposed to the whim and competence of Western ‘secondary sources’ in influencing the price of oil. The realm of secondary sources is murky, unaccountable and replete with espionage. Considered ‘secondary sources’, many organizations use a huge range of resources to try and uncover more accurate oil production data than that issued by national agencies. Tanker tracking companies are seen by most traders as the principal method in which real-time oil production data is gathered. Three companies lead the market: Petro-Logistics, Oil Movements and Lloyd’s Intelligence Marine Unit. Tanker tracking companies gather information regarding the number of tankers leaving ports from spies at oil ports and ‘friendly’ officials at oil companies leaking data. Conrad Gerber, the owner of Petro-Logistics, runs his small team from an office on Lake Geneva. Gerber first learned the trade of collecting and analyzing data of the world’s oil supplies in the 1970s when he was ‘helping’ Zimbabwe (then Rhodesia) circumvent international sanctions and procure illegal oil. Despite the obvious difficulties in obtaining accurate data that Petro-Logistics face, their figures are seen as more reliable than the OPEC member countries’ data, hence they have considerable clout in affecting oil prices.
Dodgy business with dodgy numbers
Oil producing countries do not appreciate tanker tracking companies and many prohibit reporting vessel data. There have been unconfirmed reports that informants for tanker tracking companies have even paid for their collaboration with these companies with their lives. Yet, despite the lengths tanker tracking companies go to gather this data, many oil analysts are doubtful as to the accuracy of the figures. Alexander Wöstmann, Director of www.gas-oil-power.com, stated that, “oil is transported in many more ways than just tankers and the figures that these tanker tracking companies gather from the Middle East are notoriously vague. The information they are collecting has little to do with production figures.” Rafiq Latta, Gulf and OPEC editor for MEES, which is one of secondary sources that produces oil production data and is used by OPEC, explained that, “There is a big difference between exports and well head production, with the latter essentially being what [oil] quotas are about.” Latta pointed out though that it is possible to get accurate figures through tanker tracking companies for a country like Iraq where there is very little storage. But for countries like Iran the tanker tracking data is useless as, “Iranians typically bring in a lot of offshore storage and put oil in tankers [but] wait for the market to improve before selling them on. So you can get wild oscillations in Iranian exports that do not accurately reflect oil head production at all.”
Rafiq Latta explained the complex process that he goes through in order to get more accurate oil production data than tanker trackers and official country figures. Latta’s system depends on the adding up and deducting of certain variables that range from news wire services looking at “what has happened in terms of disruptions over the month or anything coming down for maintenance,” to taking into account seasonal changes, for instance “Gulf domestic usage often goes up for air conditioning” in summer. Latta also uses the information gathered by tanker tracking agencies, as well as informers in oil companies that are somewhat reliable. All this, Latta admitted, “is a very imprecise science and it is astonishing how much relies on it. There is no oracle out there.” Ultimately, even with secondary sources, exact figures for how much oil is produced are not attainable. Secondary sources simply have a more accurate figure than the official figures produced by OPEC member countries. This is accentuated by the fact that Iran and Venezuela are seen as the two main offenders in terms of quota busting by the core Arab countries, but as Latta explained, “the secondary sources for both these countries leave a lot to be desired.”
Slippery statistics
Wöstmann is at a loss as to why a region wide metering system has not been established to solve this problem. OPEC however, has not been passive about the lack of transparent oil production data. In the late 1990s, due to the high volatility in oil prices blamed on the lack of transparent oil data, the Joint Oil Data Initiative (JODI) was set up in June 2001. JODI was created with the objective of trying to “provide a complete, timely and comprehensive database that is accessible, reliable and gives an accurate assessment of the global oil situation.” To circumvent the problem of national agencies not releasing data, JODI tried to put pressure on the oil industry to provide oil production data. But this has failed and eight years on JODI is still not seen as a credible source of data. Rafiq Latta stated that the problem with JODI is that the data received is just not trustworthy. “For OPEC, JODI can never be relied on that much. Ironically, I actually think that because analysts mistrust [JODI], they are quite accurate but the moment people start relying on JODI, or they become more timely, they will be wide open for abuse.”
Thus, the mysterious industry of secondary sources will continue to have an overbearing influence on the price of oil for the foreseeable future. As the price of oil continues to slide beneath that needed for OPEC countries to balance their budgets, there may be renewed effort to improve the transparency of oil production data. This is unlikely however, due to the internal political animosity between OPEC members and the limitations that OPEC has as an organization. As Latta pointed out, “If there was a high level of coordination and OPEC had a system that everyone trusts, then OPEC would be a far stronger organization. But there is a reason why this has not happened that goes beyond small mindedness. It is because each country has very different reasons for being in the organization and so for OPEC to have a greater level of control would make it a very different organization.” For those producing secondary sources the only threat to their business is oil running out, as the internal political squabbles of OPEC appear to be anything but finite.
