Source:
https://www.zerohedge.com/commodities/astounding-china-snapping-most-worlds-missing-barrels-oil
"Missing barrels"
"are the gap between the change in inventory implied by global supply-demand balances on the one hand, and the observed change in inventory levels by commercial and government entities (adjusted for floating storage and oil in transit) on the other hand.
As the Oxford Institute for Energy Studies writes (last week) the surplus during the first three quarters of 2020 averaged around 4.4 mb/d, with the surplus in the first half of 2020 reaching a record level of 7.6 mb/d due to the severity of the demand shock and the break-up of the OPEC+ agreement in March. This implies an inventory increase in H1 2020 of 1,390 million barrels (mbbls), before declining by 194.2 mbbls in Q3.
... The volume of missing barrels in H1 2020, the OIES writes, "is the largest ever recorded gap between observed and implied stocks since at least 1990, being three times larger than previous historical down cycles such as in H1 1998 and more recently the H2 2018 downturn and nearly 10 times larger than the imbalance of H2 2008 in the aftermath of the global financial crisis."
... models could be generating "artificial barrels" by underestimating demand and overestimating supply. The severity of the oil crisis in 2020 due to the global coronavirus pandemic led to the break of some key relationships (for instance between economic growth and oil demand) and models had to be calibrated to account for the severity of the shock (for instance, including indicators of the severity of restrictions across countries).
Another factor is the coverage and quality of data on (oil) stocks. The reason for this is that very little publicly reported, accurate information exists for oil stocks outside of the United States.
... (China) absorbed surplus barrels from all over the world as it took advantage of relatively cheap crude to fill its large and growing storage capacity.
... a large build in unaccountable stocks in Q2 2020 followed by a draw in Q3 2020 suggests that barrels were stored and drawn in places where they currently cannot be tracked.
... Put simply: the data suggest China has overbought crude to put in storage. But the key question is, how much has gone into storage and perhaps more critically, how much is likely to come back out?
... When looking at implied stock builds (i.e deducting crude used for refinery runs from the sum of domestic production and net imports), in the year-to-October, China has stored on average 1.6 mb/d, or a staggering 488 mbbls of crude.
While it has been clear that large volumes of crude oil have headed to China, judging by port congestion at Chinese shores, differentials and benchmarks, such volumes seem overstated as they would have likely led to tank tops earlier this year. According to OIES estimates, China had close to 1,100 mbbls of crude storage capacity at the end of 2019 (that's over 1.1 billion and far, far more than Cushing and the US Strategic Petroleum Reserve).
... China could well be responsible for as much as half of the missing barrels and that these are indeed "real."
... In sum, when taking into account the crude requirements of storage tanks at the various ports and other commercial sites as well as pipeline fills, the crude requirement for China’s oil system is massive. As a result, most of the crude flowing into China this year has helped meet these needs. All in all, we estimate China now holds close to 1,000 mbbls in storage, which is roughly 90 days of its import needs, with capacity by year end reaching 1,300-1,400 mbbls. The good news for markets is that only a small part of these barrels will be drawn down, but the bad news is that China’s future stockpiling needs are now shrinking.
... even though China’s crude balances are riddled with inconsistencies, it is clear that the country has amassed large volumes of crude this year — potentially close to 400 mbbls — which have contributed both to the country’s strategic reserves and commercial forward cover.
... Oxford researchers conclude, "the complexities of global crude balances, despite the important contribution made by new technologies, highlight the ongoing challenges facing OPEC+ in estimating how long it will take to rebalance the market. In addition to the uncertainties surrounding the demand outlook in these unprecedented times, assessing the extent and nature of (inventory) buffers in the system has become more complicated."