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Leonard Brecken

Leonard Brecken

Leonard is a former portfolio manager and principal at Brecken Capital LLC, a hedge fund focused on domestic equities. You can reach Leonard on Twitter.

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EIA Capitulates Under Cover Of Darkness

EIA Capitulates Under Cover Of Darkness

Many investors know that when a company wants to mitigate media coverage of bad news, they typically release data on a Friday after the close.

Well last Friday, that is exactly what the EIA did, admitting the very thing I and Cornerstone Analytics have been arguing all year: EIA was and still is overstating U.S. production. The amount that they admitted to so far, as of Friday afternoon, was 254,000 barrels per day (b/d) or 1,778,000 barrels per week, 7,112,000 per month or 14,224,000 for June and July alone.

This is the most incredible cover up I have ever witnessed in my decade-long investment career and I have not seen one major media outlet even mention it so far. Instead China demand & Iran output are front and center as per prior posts in an attempt to divert attention (I call it moving the goal posts) away from the fact that both U.S. production and inventories were about to fall. The chart below speaks for itself on what is occurring: Related: Recession Risk Mounting For Canada

Source: Cornerstone Analytics

To be clear, the EIA, on a weekly basis, uses a proprietary model to estimate U.S. oil production and then on a monthly basis uses actual data to revise those figures. Thus, what we were witnessing from Texas RRC data and Bakken output appears to be spot on in estimating that actual production was well below EIA estimates. Related: China Getting Serious About Solar Energy

As a result, the EIA made the correct choice to revise their figures. As time passes, I suspect both June and July will be revised even lower, rendering the analysis of a 14 million barrel overstatement for June and July too conservative.

By Leonard Brecken of Oilprice.com

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Leave a comment
  • adec on August 03 2015 said:
    Thanks for the article. Highly appreciated. We need someone like you to standout and correct the error and state the truth....
  • K Yamaguchi on August 03 2015 said:
    Mr. Brecken,

    I saw a 190,000 barrels a drop in production from April to May, but not sure where you got the 254,000 barrels. Could you explain how you arrived at that 254,000 correction from the EIA?

    Also, I'm wondering if the 150,000 drop in the weekly production numbers for W/E July 24 was EIA attempt to begin correcting for the May reduction? Or could it be an additional reduction? You thoughts would be appreciated.

    I agree we haven't seen any mention in the MSM - most still saying production is going up it seems. Any chance of you appearing, or being interviewed by CNBC, or Bloomberg, etc?
  • L Huff on August 03 2015 said:
    Mr.Brecken,

    Have followed your analysis since joining oilprice.com a couple of months ago...

    Have to say that I really appreciate your insights into the what does indeed seem like an intentional overstating of the US oil production numbers, the shale oil production numbers in particular.

    My (conspiracy?) theory is that the major oil companies decided drive as many of the small shale E&P companies as possible out of business, and pick up their assets. So they worked hand in hand with the Saudi's and media to create and take advantage of the manufactured "oil glut" to drive oil prices down, and buy the smaller players out as cheaply as possible.

    Once they have picked up as many of the smaller player's assets as possible... then look out, the "oil glut" disappears, the "peak oil" meme returns, and the reality of "rising worldwide demand" is acknowledged and we're off to the races as oil prices rebound to higher levels than ever before....
  • Dan on August 04 2015 said:
    Do you have a link to the EIA report where we can confirm these figures?

    In normal times this sort of 'error' would have little or no significance, however with today's low oil prices there are whole industries at stake in many countries, most Opec countries will be destabilised, and not to mention the human cost of 100,000's of unemployed oil workers and associated or interdependent employment.

    With the above in mind, it is unbelievable that the US OIL INDUSTRY are not challenging EIA figures, nor do they challenge the fact that when inventories rise it is purely down to increased imports as the US is a net importer and cannot produce more than it can use. Therefore the whole smoke and mirrors issue of storage tanks overflowing is sheer nonsense, media hype at best and systematic market manipulation at worst!!
  • Grant on August 04 2015 said:
    http://www.eia.gov/petroleum/weekly/article_images/twip150729fig1-lg.png

    Not exactly the figures referred in the article, but you can see how the green weekly estimates jump UP in June and July...when some of us are predicting that they will be down when they publish the monthly update.

    I hesitate to call it a conspiracy...when it's likely bureaucracy and incompetence in a government agency to blame. Estimating anything is more of an art than science, and forecasting is another order of magnitude more difficult.

    Weekly estimates in chart and table formats here:
    http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W

    Monthly production/average per day:
    http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_m.htm
  • Rushabh shah on August 04 2015 said:
    Hello Mr. Brecken. I also agree the EIA has overstated production and normally this would lead to higher oil prices except the only thing the media does have right is the scare of the Chinese consuming less oil due to there economy slowing drmarically. I invite you to watch this presentation by Jim Chanos describing the situatio. Oil will fall if China has a severe slowdown since that has more weight in terms of loss of demand. The impact on oil should not be as devastating compare to other commodities such as copper, steel, iron ore, and aluminum.

    https://m.youtube.com/watch?v=5jMLulZnT1g
  • chris on August 04 2015 said:
    I follow EIA report closely since I invest heavily in oil. I have been puzzled for a long time why oil production not go down even after rig count reduced more than 60% and heavy spending cut. I wonder where you get that 254k barrel daily adjusting. Any info will be greatly appreciated.

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