A Crude Balancing Act – How US Supplies Add Up

Every Wednesday energy markets eagerly anticipate the EIA Weekly Petroleum Supply Report release. Its contents frequently sway the market. Last Wednesday the biggest surprise was a 500 Mb/d reduction in crude imports. Today we start a two part analysis of EIA crude inventory data.

First a few words about the Energy Information Administration (EIA). Part of the Department of Energy, the EIA collects and publishes weekly, monthly and annual statistical data, commentary, forecasts and analysis on a wide range of energy topics. Much of this data is collected by EIA via compulsory surveys of industry participants conducted on a weekly, monthly or annual basis. The EIA publish a number of reports based on their survey data. For the energy industry, the most widely anticipated surveys are the Weekly Petroleum Supply Report (WPSR) released on Wednesdays at 10:30 AM Eastern Time (a day later if there is a holiday in the week) and the Weekly Natural Gas Storage Report, released on Thursdays at 10:30 AM Eastern Time. Both of these weekly reports reflect data surveyed for the week ending on the Friday before publication. Traders and industry analysts anxiously await these reports and pore over the data to deliver opinions that can directly impact market prices. In the days before the reports are released, analysts are kept busy trying to second-guess the outcome.

There is ton of helpful information on the EIA website (www.eia.gov) and you can access it all directly at no charge.  EIA also provide automated ways to access the data.  The purpose of all this reporting (apart from providing work for hordes of interns and analysts) is to increase transparency in energy markets. If you live and work outside the US you will recognize the value of timely EIA data compared to every other country in the world that typically reports less data, less often, and less clearly.

The WPSR report and in particular the crude oil supply/demand balance are arguably the most important EIA data releases (if you are not a gas storage junkie).  Before we get into the data let’s set the scene by reviewing the importance of two elements of crude oil supply/demand data – imports and inventory levels.

First, the very existence of the EIA is rooted in concerns about US dependence on crude oil imports. Nowadays that dependence is changing – in a good way. US dependence on crude imports is declining as domestic production is increasing. Some analysts believe that North America could produce as much crude oil as it consumes as early as 2017. Sometime before then, the US needs to address the opportunity to export crude oil (currently only permitted from Alaska). Exports will be needed because US refineries won’t be able to handle all the expected new domestic crude production.

Second, the most visible indication of the enormous changes that new domestic and Canadian crude oil production is bringing, not just to the US but also to world markets, is the US crude oil inventory stockpile. This stockpile has been growing, particularly at the important Cushing Oklahoma trading hub. That is because midstream developers are struggling to build pipeline infrastructure to deliver new crude production to refining capacity on the US Gulf Coast. The logjam of crude supplies at Cushing has had a significant impact on prices (for example opening up a $20/Bbl gap between US domestic crude prices and international crudes).

Time to hit the data. A PDF of the latest WPSR can be found here: