Oil prices have been unusually volatile over the last decade — in the most extreme case rising by nearly 25% in a single day. The price of oil is driven by many political, technological, and economic factors but much of this volatility is due to a lack of transparency in the market. The consequences of price swings are quick and widespread. In the US, Hummers and Priuses go in and out of style or the cost of residential heating changes. Effects in the developing world are much more dramatic as energy can account for a much larger share of a family’s income.
At Orbital Insight, we saw a chance to help stabilize the price of oil by giving investors a real look at the volume stored in closed economies. The amount of oil in storage is the most important single quantity in the market because it reflects the ongoing difference between a varying supply against a varying demand.
Aboveground oil storage can be quantified by using advanced machine learning and computer vision to identify oil tanks and measure their capacity. The volume of the oil is visible because the tanks have floating roofs. Using our shadow detection techniques, we can gauge the size of the crescent-shaped shadow on the roof and calculate how full it is. To obtain an accurate estimate of global oil supply, we are analyzing high-resolution satellite images from DigitalGlobe and Airbus.
Our first test case was in the United States, where the data on oil supply is relatively well-known. Our algorithm closely matched (within +/- 8%) the amount of oil reported to be stored in the US over the last 300 weeks, and we’ve been able to share that data ahead of industry reports. Our US Oil product reported a decrease in US crude oil inventory in late August, two trading days ahead of the Department of Energy’s report.
With a successful product at home, we began to look abroad to test our algorithms. We identified China, the world’s second-largest economy, where there is little oil storage data that is widely trusted.
In China, nearly all of the information about oil supply comes directly from the Chinese government. Without other ways to check that data, we can’t be sure that it’s correct. Underestimating the amount of available crude oil artificially inflates prices, which is a way for oil producers to make higher margins.
When we first applied our algorithms to China, we were concerned that there was something wrong. We identified 2,100 strategic and commercial petroleum reserve tanks capable of storing 900 million barrels of oil at the end of 2014 — four times more than the 500 tanks reported in the industry standard database of tank farms, TankTerminals.com.
Our most recent estimate counts approximately 600 million barrels of crude oil supply in China in May 2016. Though there may be additional storage underground, these findings have already dramatically changed our understanding of the amount of oil that can be stored in China, which gives investors the opportunity to price oil based on a more realistic estimate of supply.
Now that we’ve identified the storage tanks, we can make updated measurements of their volume on a weekly basis. As our satellite imagery providers like Airbus, Digital Globe, and Planet increase their coverage, we will be able to offer even greater accuracy.
We will be expanding this product for Europe, Russia, and the Middle East to confirm their reports and offer independent, accurate and timely updates on worldwide oil supply.
To learn more about how we built the technology behind this tool and identified unknown tanks in China, read this.
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