The numbers don’t add up. Literally The world’s most watched energy statistics have a problem, and it’s gotten worse over the past two years. We’re talking about EIA’s U.S. crude oil supply, demand and inventory balances, which are released every week and are released about 60 days later in monthly data. The problem is that the balances don’t balance. The EIA uses a plug number alternately called “adjustment” or “unaccounted for” to force supply and demand to match. This would not be a problem if the connector number was small and frequently changed from positive to negative, probably due to timing inconsistencies with the input data. But this is not the case. The figure is mostly positive, meaning more demand than supply. And the difference can be mammoth: last week it was 2.3 Mb/d, or 18.4% of US crude production. The barrels seem to be materializing somehow out of thin air. But now we know where, because the EIA just finished a 90-day study of the gross imbalance that reveals the sources of the problem and what it will take to fix it. In today’s RBN blog, we’ll take a deeper look at what has been causing the problem, what it means to interpret the EIA statistics, and what the EIA is doing to address the problems.
First, it’s important that we recognize the incredible work the people at EIA do for the energy industry every day, and the essential data the agency provides. Their challenges are immense, gathering disparate data from all kinds of sources, some they control and some provided by others. And then they make sense of it all and deliver reports and datasets with strict and inflexible deadlines. It’s hard work. The industry would be lost without EIA reports and data. That’s what makes this problem with the U.S. crude oil balance so unusual, and we suspect frustrating for the EIA team.
Before we get to the issue, let’s go through a quick primer on that part of the EIA’s responsibility: US crude oil supply and demand statistics. When they hit the streets, these numbers move the markets, not just here in the US but around the world. Weekly inventory numbers take center stage, but changes in inventory are meaningless unless you know why the inventory level has changed. Is production underway? Are exports down? Are imports growing? Is the refinery running low? Is the “Because” that market analysts must evaluate to make sense of market developments and of course what these developments will mean for the price of crude oil, literally the world’s most important commodity price.
