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How EIA Guestimates Keep Oil Prices Subdued


The EIA has once again undercut its previous estimates for U.S. oil production, offering further evidence that the U.S. shale industry is not producing as much as everyone thinks.

The monthly EIA oil production figures tend to be more accurate than the weekly estimates, although they are published on several months after the fact. The EIA just released the latest monthly oil production figures for June, for example. Meanwhile, the agency releases production figures on a weekly basis that are only a week old – the latest figures run up right through August.

The weekly figures are more like guestimates though, less solid, but the best we can do in nearly real-time. It is not surprising that they are subsequently revised as time passes and the agency gets more accurate data.

But the problem is that for several months now, the monthly and the weekly data have diverged by non-trivial amounts. The weekly figures have been much higher than what the monthly data reveal only later. And remember, it is the monthly data that tends to be more accurate.

Let’s take a look. A month ago, I wrote about how the EIA’s monthly data for May put U.S. oil production at 9.169 million barrels per day (mb/d). But back in May, the EIA’s weekly figures told a different story. The agency thought at the time that the U.S. was producing nearly 200,000 bpd more than turned out to be the case. Here were the weekly estimates at the time:

  • May 5: 9.314 mb/d
  • May 12: 9.305 mb/d
  • May 19: 9.320 mb/d
  • May 26: 9.342 mb/d

But two months later, the EIA published its final estimate for May, and put the figure at 9.169 mb/d. So, as it turns out, the U.S. was producing much less in May than we thought at the time. 

Now, the EIA has once again skewered its own weekly estimates. On August 31, it released monthly figures for June, and the discrepancy is even larger than the month before. The EIA says oil production in the U.S. actually declined in June, falling by 73,000 bpd to just 9.097 mb/d. Compare that to what the agency thought at the time with its weekly estimates:

  • June 2: 9.318 mb/d
  • June 9: 9.330 mb/d
  • June 16: 9.350 mb/d
  • June 23: 9.250 mb/d
  • June 30: 9.338 mb/d

If those figures were correct, the U.S. would have averaged something like 9.317 mb/d for June. But the EIA now says that data was wrong, and in reality the figure should have been 9.097. In other words, in June, the U.S. produced 220,000 bpd less than we thought at the time.

(Click to enlarge)

This may seem like nitpicking, but it’s not exactly a tiny number. If that gap were to persist for the full-year, it’s nearly equivalent to half of what Saudi Arabia promised to cut as part of the OPEC deal, or substantially more than what the IEA expects Canada to add in new supplies this year.

More importantly, if the U.S. is actually producing much less than the market thinks, there is a much stronger bullish case for oil than conventional wisdom dictates. After all, there are massive shale production gains from the U.S. baked into oil price forecasts. For example, the EIA sees U.S. oil production surging from 9.3 mb/d this year to 9.9 mb/d in 2018, a gain of 600,000 bpd.

But the problem is that not only will it be difficult to reach that 9.9 mb/d, but it now looks like an uphill battle for the U.S. to reach that 9.3 mb/d figure in 2017. For the first six months of this year, the U.S. only averaged 9.071 mb/d. It will have to seriously ramp up production in order to reach that 9.3 mb/d estimate for the full-year. In reality, that looks very unlikely.

That means that ramping up to 9.9 mb/d next year would also appear out of reach, particularly since the shale industry seemed to stall out this summer. Production actually fell from May to June; the rig count has plateaued; some shale companies are already reporting some problems; the lingering effects of Hurricane Harvey will likely impact shale growth rates for months to come (although refinery outages are bearish in the near-term); and sub-$50 WTI prices will keep shale companies from recklessly spending more than they already are.

In short, the U.S. shale industry is on track to disappoint, which would mean there is a lot of upside risk to oil prices.

12 Comments on "How EIA Guestimates Keep Oil Prices Subdued"

  1. Boat on Mon, 4th Sep 2017 7:59 pm 

    Go to the eia site and type in methodologies. Lots of links explaining how they come up with data for different reports.

  2. MASTERMIND on Mon, 4th Sep 2017 7:59 pm 

    US shale boom has already ‘peaked’ says former govt geoscientist geoscientist-4c2d23c7412f

  3. Tom on Mon, 4th Sep 2017 8:06 pm 

    EIA is a tool for holding down oil prices.

    Why else would the government offer a free service like this if it did not help them achieve their goals in some way.

    simple psychology.

  4. Tom on Mon, 4th Sep 2017 8:08 pm 

    If the EIA or FED says something, the opposite is probably true.

    If the EIA says they are releasing millions of bbls of crude in the wake of a hurricane; more than likely, they are stockpiling crude.

  5. Makati1 on Mon, 4th Sep 2017 8:21 pm 

    Tom, you got it!

  6. Davy on Mon, 4th Sep 2017 8:26 pm 

    Tom, EIA does not release crude. The are a reporting agency.

  7. Tom on Mon, 4th Sep 2017 8:48 pm 

    Thanks, Davy, I am aware…

  8. Outcast_Searcher on Mon, 4th Sep 2017 10:51 pm 

    So estimates are on the order of 2 or 3 percent off, and it’s some kind of a conspiracy or even a meaningful problem?

    I guess you must have nervous breakdowns over the massive errors in various economic estimates most of the time — both in initial figures released vs. estimates, and then there are the various revisions.

  9. tita on Tue, 5th Sep 2017 12:26 am 

    As it is pointed in the end of the article, this 3% off estimation means that the 10% growth forecast on which analysts rely is probably off too. The problem are the analysts and news media, who don’t understand that forecasts are not facts.

    The next STEO will probably have some correction, as well as the next weekly estimates. It’s quite usual for the eia to be off a few percent between estimates and reality.

  10. Cloggie on Tue, 5th Sep 2017 1:41 am 

    Tom, EIA does not release crude. The are a reporting agency.

    Tom was drilling a dry hole

    US shale boom has already ‘peaked’ says former govt geoscientist

    Russia rubbing its hands.

    I’m still amazed how low oil prices are.

  11. deadlykillerbeaz on Tue, 5th Sep 2017 3:35 am 

    In 1980 there were 20 Bakken Formation oil wells producing 437 bpd, an average of 22 bpd.

    In 2017, there are 11,316 wells producing an average of 87 bpd. Total daily production of some 984,000 bpd.

    From 437 bpd in 1980 to more than 1,000,000 bpd is an increase of more than 2000 times.

    December of 2014 was the peak production for the Bakken, reaching 1.2 mmbpd.

    The EIA has a bigger job to do counting barrels of oil produced in the Bakken. It might not be as accurate as counting 437 barrels from 20 wells.

    The estimates could be more accurate, instead of 300,000 barrels too high, a difference of 15,000 would give the estimates more credence.

    Who cares? As long as those 80,000,000 barrels are there each day, there is really nothing to worry about.

    With the other oils, palm etc and condensates, a total of somewhere in the neighborhood of 95,000,000 bpd to keep the wheels of civilization turning. Jonesin’ for the stuff night and day, if you want to know the truth.

    Screeching to a halt is Verboten.

  12. deadlykillerbeaz on Tue, 5th Sep 2017 3:48 am

    Click on historical Bakken oil monthly production statistics

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