Inventory revision sets new tone for oil

June 14, 2003, 3:50PM Houston Chronicle-Reuters News Service

LONDON -- The West's energy watchdog, the International Energy Agency, made its largest revision to oil inventory data ever late last week, adding 79 million barrels to its estimate of oil stored in the industrialized world in March.

The healthier supply picture knocked world oil prices lower, and analysts said the appearance of such a large volume of oil backed up OPEC concerns of oversupply in the third quarter.

The agency said the timing of the unprecedented revision was unfortunate, given that the world market was seeking direction after the U.S.-led war on Iraq, but that it did not change its view that global markets were tight, especially for gasoline.

"The market is obviously better supplied than we thought as little as two weeks ago, but stocks are still low and fundamentals are still tight, so we need to build more stocks," said Klaus Rehaag, editor of the agency monthly oil market report.

Geoff Pyne, oil market consultant to Sempra Energy Trading, said the revision showed OPEC, which stayed its hand on output cuts earlier this week, was right to be concerned by surplus supply.

"All the signs from OPEC were that they knew that U.S. oil prices should not be at $31 a barrel. I thoroughly agree," Pyne said. "Stocks are still below normal and can absorb some surplus in the third quarter, but I think we have entered a stage when more supply is coming on the market and will impact prices."

After the revision, the energy agency said commercial inventories in the Organization for Economic Cooperation and Development stood at 2.417 billion barrels at the end of March.

Stocks fell at a rate of 570,000 barrels per day on average in the first three months of the year but switched to a rising trend in April, building by an average 720,000 barrels per day in that month.

The agency said industry stocks in the industrialized world at the end of April at 2.439 billion barrels were still 157 million barrels below the previous year.

Analysts have been waiting for extra supplies from OPEC to turn up in stock data for several months. Until the revision, some had been scratching their heads about "missing barrels," which appeared in production data but never showed up in consumer stocks.

"Some people didn't believe there were missing barrels, but the IEA has now produced half of them," Pyne said. "The other half do exist, possibly in oil at sea or in Caribbean storage, and will be used by the market."

OPEC crude output in May rose by 220,000 barrels per day, to 26.4 million barrels per day, the agency said, because of a recovery in Venezuela and Nigeria, where production was crippled earlier this year by strikes and ethnic clashes. Iraqi output was also rising.

OPEC ministers at Wednesday's meeting in Qatar agreed to leave their output ceiling of 25.4 million barrels per day unchanged.