Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
S&P 500 Just 2% Below Record High, But There's More Stock Market Uncertainty - 19th Jul 18
Stock Market Technical Picture - 19th Jul 18
Gold Market Signal vs. Noise - 19th Jul 18
Don’t Get Too Bullish on Gold - 19th Jul 18
Bitcoin Price Rallies to Upper Channel – What Next? - 19th Jul 18
Trump Manchurian President Embarrasses Putin By Farcically Blowing his Russian Agent Cover - 19th Jul 18
The Fonzie–Ponzi Theory of Government Debt: An Update - 19th Jul 18
Will the Fed’s Interest Rate Tightening Trigger Another Financial Crisis? - 18th Jul 18
Stock Market Investor “Buy the Dip” Mentality is Still Strong, Which is Bullish for Stocks - 18th Jul 18
Stock Market Longer-Term Charts Show Incredible Potential - 18th Jul 18
A Better Yield Curve for Predicting the Stock Market is Bullish - 18th Jul 18
U.S. Stock Market Cycles Update - 18th Jul 18
Cayton Bay Hoseasons Caravan Park Holiday Summer 2018 Review - 18th Jul 18
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

U.S. Crude Oil Glut An EIA Invention?

Commodities / Crude Oil Jun 29, 2015 - 05:29 PM GMT

By: OilPrice_Com

Commodities In the latest weekly production data from the EIA, on the back of recent March revisions, the U.S. managed to post a 76,000 barrel per day increase in the lower 48. Production from Alaska fell by 61,000 barrels per day, putting overall U.S. output 15,000 barrels per day higher for the week ending June 12 compared to the previous week.

This comes at a time when multimillion barrel draws have become the norm. It is important to note that lower 48 production is estimated based on an EIA black box model, while Alaska is virtually real time data. That suggests that the weekly supply estimates are hugely overestimated.


These weekly supply numbers are then used as a basis to jump to the conclusion that the markets are suffering from too much supply. As stated on OilPrice.com many times before, the amount of "over supply" vs. the averages in the U.S. according to the EIA amounts to tens of millions of barrels of oil.

I continue to maintain that the EIA revision to production came very suspiciously at exactly the same time inventory draws began, as did the "Miscellaneous to Balance" figure used in calculating inventory. The chart below clearly shows when this figure started to grow and by what amount. It totals more than 30 million barrels since April and has been rising, which is virtually all of the oversupply above the mean in the U.S! To reiterate that number is at discretion of the EIA and is not an actual data point but an "adjustment."

Data Errors Have Real World Consequences

This figure, as created by the EIA, has (with the media's help) created the impression of a huge oil glut in the U.S. market. No one, either within the media or the industry, has asked for clarification of this number and it is instead taken as gospel. This is now wreaking havoc in energy states such as Texas, as well as threatening most oil companies as well as tens of thousands employed within the oil and gas industry. With such importance placed on a number which has impacted not only billions of dollars in company revenue but many lives for the worse, how can it be largely unchallenged by all but a few in the media?

Whether this is tied to sheer incompetence or some other, more sinister reason, the number should be as accurate as possible. The consistent errors put the vast majority of small E&P companies at risk. The EIA, at its sole discretion, has had the power the dramatically affect the sentiment and prices of an entire industry and in some cases completely obliterate it. The magnitude of the errors is mounting by the day as are the consequences.

Natural Gas

On a separate note, one has to wonder about the goings on with natural gas prices given that they are holding at only 10 percent above their yearly lows. Stocks, as reported this morning, are still healthy at 1.4 percent above their 5 year average but this number may be a bit misleading. Demand tied to coal switching is quite frankly soaring and is at record highs. To reiterate, this comes at a time when natural gas production is poised to decline. One of the largest natural gas producers in the U.S., Chesapeake Energy, is expected to start seeing 5 percent declines in 2016 production according to UBS, as Free Cash Flow (FCF) continues to be hugely negative at nearly $3 billion through 2016 as debt/EBITDAX (Earnings Before Interest, Taxes, Depreciation, Depletion, Amortization and Exploration Expenses) soars to over 5X. This comes as hedges roll off in 2016. With FCF being negative throughout the group, the problem starts to look like a serious issue. There will come a day of reckoning when capital expenditures dry up as demand continues and the data distortions on estimates finally become clear to the markets. It won't be pretty for prices down the road and it will come as a result of capital budgets getting slashed based on artificially depressed prices. When this occurs everyone should re-read this article as I'm sure the cries from soaring prices will become very loud. The E&P space won't be the cause but the victim in all this. Data distortion by government agencies has serious consequences on capital investments.


Image source: Cornerstone Analytics

Source: http://oilprice.com/Energy/Energy-General/US-Oil-Glut-An-EIA-Invention.html

By Leonard Brecken for Oilprice.com

© 2015 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules