Publications: Notes at the Margin

Contaminated Oil Market Data (June 9, 2025)

 

Those who follow oil markets believe inventories are high and will increase. Some predict that the market will shift into contango, even though it is currently extremely backwardated. We explain the situation by the fact that refiners are buying as little crude as they can, fearing a price decline.

 

However, those opining on market conditions must recognize that much of the quantitative data they rely on is fictitious, produced by consultants seeking to please OPEC ministers and avoid being ostracized, as The Economist warned in a June 1 article.

 

A comparison of the data produced by two sources catering to OPEC reveals wildly different estimates, implying the data cannot be trusted. Today, price data may be the only reliable indicator of market conditions. Given the current backwardation, it is difficult to explain the anxiety over potential price decreases.

 

We note, however, that in late 1985, market circumstances were similar as Saudi Arabia launched an aggressive program to recapture market share. Cash prices initially rose as the Saudis pushed oil into the market and inventories declined, due to refiners cutting their purchases in anticipation of a further crude price collapse. Prices then fell by more than fifty percent in mid-1986.

 

History may be repeating.

 

To receive the full report along with future issues of Notes at the Margin, please Contact Us or send us an Information Request for subscription information.