Want to Make a Big Bet on Oil Prices? Try Measuring Shadows | WSJ


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

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