What did I tell you? The EIA has done it again.
First, it is important to remember that weekly EIA production numbers are just estimates (except for Alaska, which is near real time). For the week ending on May 22, the EIA reported a monster increase in production of 3 percent from the week before; way above what has essentially been a flat trend line for several months. On an inventory basis, crude stocks fell over 2 million barrels versus a 1 million barrel gain from the API inventory report. The main culprit, which was the reason for past stock gains, was a fall in imports as well as continued strong gasoline demand as refiner’s ramp post seasonal maintenance.
I warned oil enthusiasts that EIA numbers are very suspect and this latest game just shows you how suspect they really are. After production flat lining around 9.3 million barrels per day since February, even declining a bit in recent weeks, last week the EIA says that output jumped by 300,000 barrels per day? And out of the blue, they decided that the March baseline should be raised 130,000 barrels per day (Bbls/day) (“based on what?”, I ask) and then decided to estimate another 75,000 Bbls/day for the week ending May 22 (again, “based on what rig count?”).
True, Alaskan output climbed 95,000 Bbls/day after falling quite a bit the week earlier and this figure is probably accurate. However, after I and others have repeatedly called out the EIA for over estimating output and underestimating demand, what do they do? Magically revise figures higher at the perfect time when prices are being beaten down by Goldman Sachs and others as the economy slows. And, as a reminder, this comes at the time when the US government decides that the seasonal GDP adjustment needs to be adjusted again to better reflect growth in the economy. Also, let us not forget what all the rail data showed in late winter: that production is slowing, not going up.
What is disturbing is that the EIA continues to do the opposite of what hard indicators are saying by revising production up instead of down, a move that I had expected. I will admit that in the first quarter of this year E&P companies did show marginally better output in their quarterly results, although not by a huge amount. But the fact is, no hard evidence exists to justify these revisions that go counter to the physical data such as rail figures, rig count, depletion etc. Remember, production numbers are just estimates. And the EIA actions come at a time when fudging via
government agencies appears accepted as the norm when it supports policy.
In the end, the most important takeaway here is that there wasn’t any surge in output in May, but simply math games at the EIA.
By Leonard Brecken of Oilprice.com
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