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.
First of all, it’s important that we acknowledge the awesome work the folks at EIA do for the energy industry day in and day out, and the essential data the agency provides. Their challenges are immense, pulling together disparate data from all manner of sources — some they control and some provided by others. And then they make sense of it all and send out reports and datasets under strict, unyielding deadlines. It’s a tough job. The industry would be lost without EIA’s reports and data. Which is what makes this problem with the U.S. crude oil balance so unusual, and we suspect so frustrating for the EIA team.
Before we get to the problem, let’s go through a quick primer on this piece of EIA’s responsibility: U.S. crude oil supply/demand statistics. When they hit the street, these numbers move markets, not just here in the U.S. but around the world. The weekly inventory numbers take center stage, but changes in stocks are meaningless unless you know why the inventory level changed. Is production up? Exports down? Imports increasing? Refinery runs decreasing? It’s the “why” that market analysts need to assess to make sense out of market developments, and of course, what those developments are likely to mean for the price of crude oil — literally the most important commodity price in the world.
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