Clouseau-esque market-moving commentary, IEA edition | FT Alphaville

Clouseau-esque market-moving commentary, IEA edition

On Thursday the International Energy Agency (IEA) issued its latest monthly oil report, and in case you weren’t aware, the market was awaiting the forecast more than usual.

This was largely on account of expectations the IEA would finally put an end to its eight-month run of  global demand cuts and  in so doing confirm ‘green-shoot’ hopes that the economic crisis may be easing.

What’s more, the expectation itself was based on some pretty reliable sources: comments from IEA Executive Director Nobuo Tanaka, no less. Speaking earlier this week while in Poland, Tanaka said the IEA was unlikely to reduce its oil demand forecast in May. The Reuters quote went:

According to our forecasts non-OPEC will be reduced by half a million barrels per day in 2009 and on the whole production will be down 1.7 million barrels per day.

Current inventories are very high and that helps easing the market at the moment. Because demand is so weak the inventories of over 60 days are a bit exaggerated.

Lo and behold, come Thursday, the IEA announced:

LONDON, May 14 (Reuters) – Oil fell below $57 a barrel on Thursday after the International Energy Agency (IEA) said global oil consumption will fall this year at the fastest rate since  1981.

The Paris-based IEA, adviser to 28 industrialised nations, said the rise in oil prices to a six-month high above $60 this week was due to sentiment rather than supply and demand fundamentals, with consumption set to fall by 2.56 million barrels per day (bpd) in 2009.

“The oil price seems to have moved a bit higher in the past month largely on the basis of equity markets and sentiment about potential economic recovery,” David Fyfe, head of the IEA’s Oil Industry and Markets Division, told Reuters.

That’s right, a cut to its demand forecast of about 230,000 barrels a day versus its forecast last month. Given the above, it’s fair to assume the news may have come as a bit of a surprise to some in the market.

Luckily for Barclays Capital, this would not have been the case for their clients. The bank’s savvy energy-research team made up of Paul Horsnell, Constanza Jacazio and Kevin Norrish had already well spotted Tanaka’s “Clouseau-esque” tendencies for rogue commentary.

In a note on Wednesday– the day before the report’s release — they cautioned their clients to remember: “It’s data release Jim, but not as we know it”. As they noted (our emphasis):

A month or so ago (see Weekly Oil Data Review, 8 April 2009) we expressed some concerns about elements of the International Energy Agency’s modus operandi, and one of those was as follows. “The (third) aspect that concerns us is the tendency for the broad trends of the next IEA report to enter the public domain early through press contact with the IEA’s Executive Director.

It’s data release Jim, but not as we know it.  The media has discovered that if they ask about the next report, they often get an answer. While the nature of the past few of those answers have hardly been a surprise, one day they might be.

Leading the analysts to caution:

In our view, this is not an appropriate mechanism to get the partial contents of a market sensitive data release into the public domain, any more than it would be if the US Energy Secretary started providing clues in advance as to the next US weekly data”. Another month and another incident. The next IEA monthly report is due on 14 May, but we already have some clues as to its contents, and those clues came from the usual suspect.

Speaking in Poland earlier this week, the IEA’s Executive Director was widely quoted as saying that the IEA is unlikely to reduce its oil demand forecast this time, and that (according to Reuters) “According to our forecasts non-OPEC will be reduced by half a million barrels per day in 2009 and on the whole production will be down 1.7 million barrels per day.”

Ending with a somewhat backhanded compliment of:

To some extent there is something almost charming about this pattern of repeat pre-releasing and pre-description, and something Clouseau-esque in the predictability of the next faux pas. 

Nevertheless Barcap concluded, there was really no win-win scenario for the IEA if it continued on its current unscrupulous path:

But then again, this concerns the release of potentially market sensitive data, and one wonders if the IEA should not perhaps think about at some point instituting a few broad rules about how that release of sensitive data should ideally happen. If the ideal method turns out to be to have highlights shouted randomly at points along the Metro, and key data tables scribbled on the back of packets of Gitanes to be left in cafés along the Rive Gauche, then we would say that the IEA’s Executive Director is currently operating fully within the spirit of the rules.

If, however, it is thought that maybe something a little more formal might be appropriate, then perhaps somebody in the IEA might want to talk to their leader. On the fern perhaps. If the next report shows the latest pre-releases to be true, then the IEA has again let details slip almost randomly into the public domain, which might seem to many to be a truly Clouseau-esque way to provide forecasts. However, if the next report shows the prior leaks to be confusing or incorrect, then in addition the IEA has added a degree of unnecessary noise to the market.

Quite a telling off, indeed. And not, it seems, without a hint of irony for the IEA itself. A not insubstantial portion of their own report was focused on chastising the reporting techniques of some other important players in the market.

As Dow Jones reports (our emphasis):

BEIJING (Dow Jones)–The International Energy Agency questioned the reliability of China’s economic data Thursday, saying the official 6.1% on-year growth in real GDP in the first quarter didn’t tally with falling oil demand.      

The IEA said China’s oil demand declined by 3.5% in the January-March period, led by sharp contractions in naphtha and gasoil, while the government’s economic growth figure was also out of line with electricity demand “which was also inordinately weak.”

“Admittedly, pinpointing China’s oil demand with accuracy is an exercise fraught with difficulties, given the lack of data and the underlying assumptions analysts must make regarding stocks and refinery output from independent producers,” the IEA said in its latest report on the global oil market.       “Still, one would have expected stronger, positive oil demand growth commensurate with the reported economic resilience, unless income elasticities had drastically changed.” 

Although, let it be known, we do side with IEA on the actual substance of the critique, especially in light of  China’s own admissions on Thursday regarding contradictions in its imports versus demand figures, as can be read about here.

Related links:
Quote du jour, China’s fake recovery edition
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China’s fake recovery
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IEA predicts sharp fall in oil demand – FT