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Has The EIA Been Overestimating Oil Production?

Harold Hamm

The Energy Information Administration is overestimating U.S. crude oil production, Continental Resource’s chief executive Harold Hamm said today in an interview with Fox Business. Hamm was notably the only shale oil major executive who warned against the too-quick boosting of shale oil production after the OPEC-non-OPEC output cut deal from the end of last year.

“EIA over-forecast what U.S. production was going to be this year by about 100 percent,” Hamm said, adding that the EIA has been revising its production estimates down but by a much more moderate rate than the actual decline in production. And 100 percent too much is a fairly large number, and the market was only too happy to see at least a small adjustment, which was made in the EIA’s latest Short Term Energy Outlook (STEO). According to Hamm, the EIA “made an adjustment of 130,000 barrels down” to compensate.

“We are showing about 9.35 million barrels, 9.4 million barrels by the year’s end for the U.S. In comparison their prediction was 9.8-9.9, close to 10 million barrels,” Hamm also told Fox Business’ Maria Bartiromo. The EIA’s September STEO also pegged year-end oil production in the U.S. at 9.3 million bpd, and average 2018 production at 9.8 million bpd.

According to Hamm, the recent improvement in prices was to a large extent caused by the downward revisions of production rates that the EIA has made over the last two months, despite the fact that they were much smaller than they should have been: about half a million bpd, according to Continental’s CEO’s estimate.

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That could certainly pressure prices, with market observers increasingly unsure who to believe with regard to production estimates. And Hamm did not stop there. He drove his point home with a punch, saying, “If you look back when Nigeria and Libya brought on an extra 400,000 barrels, the price was hit some 20 percent, it went down $53 to $43, and we feel like that’s about the adjustment that’s due right now.”

By Irina Slav for Oilprice.com

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  • Brandon on September 20 2017 said:
    Not only EIA has been overestimating production, but also underestimating demand, particularly in 2017. EIA is now trying to recover from this by continuously updating their figures. Oil market experts know that both API and EIA are no longer reliable sources of information, and too many times it has occurred that discrepancies between their weekly reports have magnitudes of several Mbpd. This is ridiculous. Actual oil price is currently heavily underestimated.
  • Kr55 on September 20 2017 said:
    They have been all year. In the weekly reports and productivity report. Weekly, they are tricked by private storage being dumped to market and when it comes so consistently, they just lump it in with production to try to keep their fudge factor (adjustment) lower. Those privately stored off the books barrels will run dry however, leading to a reversal of their fudge factor and eventually after they stop being stubborn, they will start to eat away at the production number and try to keep their mistake hidden.

    For the productivity report, they just guess based on drilling/rig counts and wild guesses on completions. Completions can't be done at the pace they expect because it would drive up costs too high, and there is limited propant supply on the market still. Also, there was a revelation on how wells that were put too close together can destroy legacy production, so many DUCs made during the wild drilling earlier this year may actually be near worthless in the short/medium term.

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