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Satellite Analysis Says Oil Price Could Spike Much Higher

Satellite Analysis Says Oil Price Could Spike Much Higher

This is huge news for the oil market.

The world may have underestimated the demand for oil in China.

According to Barclays Plc, storage data obtained by satellite implies the amount of crude China is storing is below what can be extrapolated from the nation’s customs and production data, meaning the country may be consuming more oil than official data indicate, and that the world supply-demand balance is tighter than previously assumed.

“If satellite data are accurate and reflective of broader activity in the Chinese oil sector, this is bullish for oil fundamentals,” Michael Cohen and Warren Russel, New York-based analysts for Barclays, wrote in the report. “It implies that China’s refinery runs and end-use consumption may be understated, and that global balances are tighter than consensus and our own forecasts.”

The data obtained by Ursa Space Systems Inc. indicates crude inventories in the world’s largest importer has grown by about 360,000 barrels a day from April through August of this year, indicating a year-to-date stockpile 87 million barrels, or roughly two-thirds lower than the 1 million barrel per day rise the Chinese government data suggests for the same period, Barclays said.

The country’s international crude purchases jumped to the second highest on record in September, rising 13% to 9.04 million barrels a day as new refineries started boosting demand. Imports from January to September gained 12.2% over the same period in 2016 to about 318 million tons.

The world crude market’s deficit is expected to average roughly 300,000 barrels per day in 2017, according to Barclays. The bank estimates the oil demand growth in China to 600,000 barrels a day this year, and a half-million per day in 2018.

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