The year 2021 has been the year of the great drop in oil inventories. Everything that goes up tends to go down and vice versa. After crude oil reserves skyrocketed in 2020 in the midst of the pandemic (with the world in lockdown, gasoline, kerosene was allowed to be consumed), in 2021 the situation has been completely reversed with a drop of more than 600 million barrels or at least that is what is believed, because the International Energy Agency (IEA) ‘dances’ 200 million barrels.

This advisory body of energy-consuming nations revealed this past Wednesday that world inventories should have fallen “only” by 400 million barrels, according to its daily supply and demand data. However, official reserves indicate that the drop has been 600 million, a figure to which the IEA gives greater credibility.

There is always some kind of error between supply and demand, but a discrepancy of 200 million of barrels means the oil market could be much tighter than previously thought. In other words, the demand would be higher than what the figures say and that would explain the mystery of the 200 million “lost” barrels.

Fall in oil inventories

The gap could be the result of undervalued demand or overvalued production, says the IEA. Either more oil is being consumed than is said or crude oil production is less than what the countries officially report, or a combination of both.

“A retrospective view shows the difficulty in the last two years of reliably analyzing and forecasting supply and demand,” the agency warned on Wednesday. “The lessons learned will improve the work in 2022 and allow us to better understand our market.”

While the balance between supply and demand may be one cause of the mismatch, there could be others as well. The agency uses satellite data to track oil reserves, for example, but that doesn’t extend to the barrels used to fill pipelines or those stored in huge underground caverns.

The truth is that, after all, there is less oil than was believed and “preliminary data available to date show that global oil stocks have been reduced by a massive average of 1.66 million barrels per day during 2021, some 666 million barrels disappeared from inventories in 2021. At around 7.4 billion barrels, oil stocks at the end of December 2021 were some 1 billion below their May 2020 peak and well below from pre-pandemic levels.

With this scenario, Brent oil is already close to $90 per barrel after trading in the $20 area during the worst of the pandemic.