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Want to Make a Big Bet on Oil Prices? Try Measuring Shadows | WSJ - YouTube
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(projector buzzing)
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- [Narrator] This is the world's largest
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oil processing plant,
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located in the Eastern
Province of Saudi Arabia.
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Early on Saturday, September
14th, a series of explosions
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rocked the facility, and the
world woke to see it burning.
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- [Reporter] Satellite
images show thick black smoke
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billowing from the Aramco
Oil Facility in Abqaiq.
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- [Reporter] The nation's
state-run oil company,
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Saudi Aramco, has temporarily
closed its facilities,
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which many experts expect
will cause a lack of supply
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leading to higher global oil prices.
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- [Narrator] But while the
world was looking over here,
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energy traders on Wall
Street and elsewhere
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were also looking over
here and here and here
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at thousands of storage
sites around the world
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where companies and
countries stockpile oil.
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What's inside these tanks
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can be valuable information for traders
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who make big bets based on
how much supply is available
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and where in the world it's located.
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For traders, an event like
the one in Saudi Arabia
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can be an opportunity.
(dramatic orchestral music)
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- So in the event of, you
know, market crisis situations
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or disaster events,
there's a natural increase
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in volatility, and we do
see increased interest
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from our client base and
from prospective clients.
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- [Narrator] Mario De La
Ossa is an energy specialist
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at Orbital Insight, a
company that estimates
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the tanks' contents
using satellite imagery,
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artificial intelligence, and
a lot of complicated math.
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- I guess to say, well, we are quite proud
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of our coverage levels,
which are on the order
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of seeing about 80% of the
world's oil tanks every week.
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- [Narrator] Orbital is
at the vanguard of firms
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that sell data to hedge
funds, energy companies,
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and others who are looking to
anticipate oil price moves.
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To get their hands on the data,
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the first thing Orbital had to do
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was find as many of
these tanks as it could.
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Employees train computers to spot them
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by feeding them image
after image of oil tanks.
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Once the computers got the picture,
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they scanned satellite imagery
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and found more than 25,000
tanks around the world.
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Orbital is constantly
collecting images of each tank
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which its computers then examine
to estimate their contents.
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The key to doing that lies in the shadows,
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particularly those cast
upon the tops of the tanks.
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- [Mario] A floating roof
tank goes up and down
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according to the volume of
oil that's inside of the tank,
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and that's done to prevent
a vapor space from forming
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that would be very bad in
terms of explosion risks.
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- [Narrator] Orbital's computers
measure the shadows cast
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on and around the area of each tank.
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The shadow cast to the outside
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is used to determine
the size of each tank,
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which can range from 50,000
barrels to more than a million.
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The shadows cast inside the structure
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is used to measure how much
oil is inside the tank.
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Generally, the bigger the shadow,
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the less oil there is inside.
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- So we have that going for us,
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that where the position of the roof is,
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it will correspond to the volume
of oil inside of the tank,
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but then to actually
calculate the specific volume,
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this does become, you know, complex
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in terms of aligning the exact
position of the satellite,
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the position of the sun
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to adjust for the shadow
length that was cast.
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- [Narrator] Orbital
then adds up the volumes
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and compares them over time,
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noting when stockpiles grow and
shrink in different regions.
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The company is able to do this quickly,
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beating official reports by
weeks and sometimes even months,
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and they can offer insight
to parts of the world
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where supply data are scarce or suspect.
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- So how much is there in,
let's say, Cushing, Oklahoma,
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and that's fairly well-tracked.
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What's not fairly well-tracked,
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and this is one of the big problems
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for people on the marketplace,
is how much oil is in China,
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because the Chinese don't
openly disclose that.
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Historically, 80% of the
market has just been very dark.
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(pleasant electronic music)
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- [Narrator] Knowing how
much oil is out there
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and where it's stockpiled
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is useful to a range of businesses.
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Energy producers use it to
decide whether to drill wells.
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Refiners that turn crude
into products like gasoline
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and jet fuel wanna know when
to buy their main ingredient.
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Hedge funds and other speculators
simply wanna make money.
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These traders might act on clues
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that stockpiles are dwindling
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by buying oil now and selling
it later once other buyers
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realize supplies are low
and the price goes up.
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Predicting changes in the availability
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and thus the price of oil
can be incredibly lucrative.
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Andy Hall, who advises Orbital,
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is one of the most successful
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and well-known oil
traders of recent decades.
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He made a fortune buying
boatloads of cheap oil
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before Saddam Hussein
invaded Kuwait in 1990,
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which touched off the first Gulf War
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and sent crude prices soaring.
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Traders like Hall are always looking
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for ways to gauge oil supply.
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They count the rigs
that are drilling wells
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and measure what's
passing through pipelines.
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They train cameras on import
and export loading docks
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and count tankers moving through waterways
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like the Houston Ship Channel
and the Strait of Hormuz.
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Firms like Orbital have
taken this kind of detection
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to a whole new level.
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Before the attacks on Saudi Arabia,
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Orbital observed a lot
of shrinking shadows
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on the tops of the kingdom's oil tanks,
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suggesting that it was
building up its stockpiles,
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but after the attacks,
the shadows began to grow,
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which meant that Saudi Arabia
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was tapping reserves to satisfy customers,
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but the firm didn't just look there.
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It looked at China, where tanks were full,
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and the U.S., which
were also well-stocked,
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and in Japan and South
Korea, which were not,
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and in India, where the
shadows were growing
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as imports from Saudi Arabia dwindled.
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Meanwhile, back on Wall
Street and in Houston
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and London and Singapore,
traders placed their bets.
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(dramatic piano music)
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