Explosive Crude Oil Import Surge

The numbers don’t add up. Literally. The most closely watched energy statistics in the world have a problem, and it’s been getting worse over the past two years. We’re talking about EIA’s U.S. crude oil supply, demand and inventory balances, which are published each week and then trued up about 60 days later in monthly data. The problem is that the balances don’t balance. EIA uses a plug number alternatively called “adjustment” or “unaccounted for” to force supply and demand to equate. That would not be an issue if the plug number was small and flipped frequently from positive to negative, likely due to timing inconsistencies with the input data. But that’s not the case. The number is mostly positive, meaning more demand than supply. And the difference can be mammoth: last week it was 2.3 MMb/d, or 18.4% of U.S. crude production. It seems like barrels are somehow materializing out of nowhere. But now we know where, because EIA just finished a 90-day study of the crude imbalance that reveals the sources of the problem and what it is going to take to fix it. In today’s RBN blog, we will delve into what has been causing the problem, what it means for interpreting EIA statistics, and what EIA is doing to address the issues. 

Brace yourself for it. Over the next few weeks, there’s a good chance that a tsunami of crude oil will be released from the U.S. Strategic Petroleum Reserve (SPR), and it’s likely that much (if not most) of that oil will be piped to Gulf Coast export docks and loaded onto supertankers. If that happens, the export capacity of crude-handling terminals from Corpus Christi to coastal Louisiana will be stress-tested on their ability to send out much larger volumes than they’re used to dealing with. And that’s only the beginning. Over the next year or two, while U.S. E&Ps ratchet up production in response to higher prices as Europeans and others scramble to replace Russian crude oil, Gulf Coast export terminals may well be called upon to load and ship out even more oil (in addition to refined products) on a regular basis. In today’s RBN blog, we discuss the impending SPR releases and the ability of Gulf Coast ports and individual terminals to handle increasing volumes.

U.S. crude oil fundamentals have shifted sharply in the past few weeks; some changes were fully anticipated, and others more exaggerated than originally expected. U.S. production has risen again to another record-setting high, while a massive decline in refining activity due to turnaround season — and a number of unanticipated short-term shutdowns — has erased a lot of domestic demand for crude. Meanwhile, export volumes out of a few key Gulf Coast terminals are hitting all-time marks. U.S. crude oil imports, affected by international disruptions and refining demand, have dropped like a stone and are nearing 20-year-plus lows. With School of Energy 2019 now in session, it’s a great time to recap what’s been happening over the past month. Today, we look at the summer-to-fall shift in fundamentals, and how it’s impacted overall inventories.