A startup backed by Goldman Sachs is measuring shadows from space to track the world's oil supply - and it's yielding shocking numbers that no one else has
- The world is awash in oil that nobody wants, causing storage tanks around the world to fill up at historic rates.
- Knowing exactly how much oil is in those tanks is worth a lot - because the more supply, the cheaper the oil.
- Orbital Insights, a startup backed by heavyweights like Alphabet's GV and Goldman Sachs, has an unusual way of figuring it out involving satellite imagery, radar, and computer vision.
- The result is one of the largest oil inventories, which shows an increase of a stunning 130 million barrels in oil inventories in just the last 30 days.
- Visit Business Insider's homepage for more stories.
As the sun passes over Cushing, Oklahoma, it casts dark shadows across dozens of white oil tanks that surround the small southern town, known as the nation's largest oil hub.
If you know what you're looking for, those shadows can tell you a lot, such as the size of the tank and how full it is. With those two numbers, you can figure out precisely how much crude oil is in each one of them.
That information is valuable because oil is valuable. Traders, analysts, and energy companies go to great lengths to figure out how much oil is in storage, which factors into the supply side of an equation that determines what the future cost of the commodity will be.
But that information becomes far more valuable when you multiply it across the world's 27,000 or so floating-roof tanks to reveal storage worldwide at a time when everyone is asking about it.
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That is precisely the strategy of a little-known startup, based in Silicon Valley, called Orbital Insights. The firm offers data and analysis gleaned from remote sensing tools like satellites and anonymized cell phone coordinates.
Founded in 2013, Orbital tracks the world's oil supply - not just using shadows, but also by bouncing radar pulses off of oil tanks.
The startup has caught the attention not only of major oil companies and analysts but also of heavyweight investors including Alphabet's venture arm GV, Goldman Sachs, Sequoia Capital, and Chevron that have together poured more than $125 million into the company.
Images from space
More than 2,000 satellites circle the globe, gathering and distributing all kinds of information from communications to weather patterns.
Orbital uses observations from more than 200 of them, the company's website says. Some of those observations are imagery - high-resolution pictures of small squares of the planet - while others are gleaned from beams of radar.
The first challenge to tracking oil supply was to map out all of the world's oil tanks, said James Crawford, the firm's CEO and a former engineering director at Google.
The company relied on what's called computer vision. Basically, you feed a computer images of what tanks look like from space until it begins recognizing them on its own, in the same way that Facebook is able to automatically recognize your friends' faces.
Through that process, the firm found thousands of floating-roof tanks, which account for most but not all of the world's oil storage. The tanks are named after lids that float on top of the oil to prevent emissions and the build-up of explosive gases. The tops rise and fall with the oil inside.
The next hurdle was measuring how much oil was in each of them.
The firm first uses more computer vision and some hefty math to measure two shadows. A shadow on the outside helps the company calculate the size of the tank, while the shadow formed by the tank's rim shows how far down the roof has fallen, a proxy for how full it is.
Orbital also measures how full each tank is using beams of radar emitted by satellites. Radar is especially useful for parts of the planet that are covered by clouds, which these beams can penetrate.
"You get two pulses: one from the rim of the tank and one from the roof," Crawford said. "You can tell how full the tank is by looking at the difference between those two bounces."
All in all, Orbital analyzes about 300 million square kilometers of imagery every year to estimate global volumes of oil storage, the company says.
What the company found: 'crazy increases' in storage
Stay-at-home ordinances to prevent the spread of the novel coronavirus have cratered demand for oil-based fuels, such as gasoline. In fact, oil demand will be down nearly 30% in April, relative to the same month last year, according to projections from research firm Rystad Energy.
At the same time, Saudi Arabia, one of the world's top oil producers, began increasing oil supply at the beginning of April, when the agreement among OPEC, a coalition of oil-producing countries, and its allies to limit supply expired.
These forces are driving epic increases in oil storage, Crawford says.
Orbital's database - which the company says is "likely the largest catalog of tanks and tank locations in the world" - has found that the quantity of oil in storage has increased by 150 million barrels, compared to last year. Nearly all of those barrels, about 130 million, were added in just the last 30 days, the firm said.
Orbital observed an especially steep hike in storage in China and among OPEC countries.
China is seizing the moment when oil is cheap to build its strategic oil reserve, CNN's Laura He reports. Meanwhile, storage among OPEC producers is growing in part because they're upping production, as Business Insider previously reported.
"Because of what's going on in China and OPEC, we're up to really unprecedented numbers in terms of global storage," Crawford said. "Just crazy increases."
Orbital's data paints a bleak picture for oil prices. Storage is filling up fast - in China, for example, Crawford says storage tanks are nearing about two-thirds capacity. The US isn't looking great either.
"Crude builds in April will reduce available crude capacity by a third, leaving, in theory, about 200 million barrels of storage capacity (or two more months at the same filling rate)," Rystad wrote in a recent report.
When there's nowhere for oil to go, the price falls. It could even go negative, as oil producers actually have to pay people to take oil from them.
OPEC countries and their allies - namely, Russia - are meeting virtually today to discuss paring back supply. And expectations that the meeting will lead to a production cut is buoying the price of oil.
Whether that translates to a drop in storage remains to be seen, but Orbital will certainly be watching.
Get the latest Oil WTI price here.