OPEC’s first supply cut deal in eight years came as good news for a Swiss family business founded by an economics analyst who once helped the then Rhodesian government procure oil supplies in the face of sanctions.
Geneva-based Petro-Logistics earns money from the lack of timely and complete information from OPEC members and other oil exporters like Russia in the 95 million barrels-per-day global market, by tracking shipments to estimate production and supply.
The Organization of the Petroleum Exporting Countries is planning to cut its output by 1.2 million bpd from Jan. 1, its first such deal since 2008. Russia and other non-members are planning to cut about half as much.
The deal will heighten interest in assessments of OPEC production, to see the extent to which it makes good on the cutbacks. As well as Petro-Logistics, other consultants, government bodies and news services estimate OPEC output.
Oil prices jumped to $57.89 a barrel, their highest since July 2015, on Dec. 12, supported by the prospect of lower supply. Estimates of OPEC and Russian compliance in 2017 will likely lead to more price volatility.
Since the early days of Petro-Logistics which was founded in 1980, and since the last OPEC cut of 2008, more data has become available, such as satellite information on tanker positions, helping to make the oil market more transparent.
While this helps, piecing together the whole picture such as what type of crude is on the tanker and who is buying it remains no easy task, Petro-Logistics’ chief executive Daniel Gerber, who began with the firm in 2009, told Reuters.
“When I started at Petro-Logistics, we were still using Lloyds List Voyage Records, which were monthly publication hardbound books providing you with a handful of tanker positions in any one update,” he said.
“While there is some information that is easier to get, such as satellite data on ship positions, the whole story is harder to put together in terms of things like grades, customers, refining activity, in-country demand and field-by-field production, making the element of human experience even more important than in the past.”
Petro-Logistics estimates OPEC managed to achieve about 60 to 70 percent of the pledged reductions last time around in 2008-2009, and expects a similar level with the new initiative.
“This time we expect the core OPEC – Saudi, UAE and Kuwait – to largely stick to their commitments, which alone should result in about 50 percent cut compliance. With a bit of help from the other members, we should see 60-70 percent compliance once again.”
Libya and Nigeria – exempt from the cut – are wild cards, as is Russia. “Russia doesn’t have the best history of joining OPEC cuts, they are another big wild card.”
Since OPEC accounts for the bulk of the world’s oil exports, its level of production is vital information for traders, consumers and governments.
The trouble is, finding that number is not easy due to a dearth of timely official information. Even OPEC itself issues two sets of figures – those provided by members and independent estimates – which show significant differences about the level of, say, Saudi or Iraqi output.
Petro-Logistics was founded by Conrad Gerber, Daniel’s father, after he had spent 13 years working for the Rhodesian government, “countering sanctions and defying an apparently hostile world,” as his son put it.
“My father received a challenge from an oil trader to perfect a new discipline in oil market analysis – the art and science of tanker tracking,” Gerber said.
“He was willing to do the hard work. That meant a lot of travel to some pretty interesting places, setting up structures to bring all the information together, and the crucial part, the experienced human element.”
The Petro-Logistics OPEC estimates originally relied on Gerber senior’s vast network of contacts. Sent out to clients under the heading “CONFIDENTIAL,” the numbers sometimes made their way onto news wires, moving the price of oil.
This gave rise to an oil-market myth that Petro-Logistics had people stationed at ports around the world with binoculars, counting tankers as they left with crude, although this was “just people trying to make sense of how my father got access to such good information,” Gerber said.
Daniel and his brother, Mark, now manage the company following their father’s death in 2009. It has 15 staff, of which 10 are full time. Three are based in a Houston office.
Petro-Logistics’ clients have included most of the main types of participant in the oil market – oil majors, trading houses, banks, hedge funds, national oil companies – and even other OPEC members themselves.
“Back in the 80s in particular and still today, OPEC members didn’t trust each other and they were very keen to understand what other members were doing, if they were sticking to their quota agreements,” Gerber said.
While it was a myth about the binoculars, and technology now allows real-time tanker tracking, the company does collate information from a source network accumulated over decades.
“In reality, knowing what tankers are arriving and leaving a port is the easiest part of the equation,” Gerber said. “Knowing what is on board is far more complex and requires contacts on the ground.”