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Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: When Will U.S. Crude Production Roll Over? It Already Has!
June 29, 2015

In keeping with our recent focus on tracking down "missing barrels" of oil around the world, this week's "Stat" will turn our sights to the U.S. oil market data. Over the past two weeks, we have proposed that the imbalance (or plug) within the IEA's global oil model has been driven largely by the combination of underestimated oil demand and Chinese crude stockpiling. Because of this, the world oil markets are probably tighter (or more bullish) than the initial data suggested. While many investors are aware of the IEA's global plug that typically represents understated demand, many are probably not aware that the U.S. Department of Energy's Energy Information Agency (or EIA) weekly oil data also has a plug number used to balance its measured weekly U.S. oil supply, demand, and inventories. As opposed to the IEA, we believe that the largest component of the EIA weekly plug is currently overstating U.S. oil supply growth. While the agency does not retroactively revise its weekly data set, it does provide more accurate oil supply/ demand data when it publishes its monthly report. This means the most accurate U.S. oil data we have today is from the March monthly report. So, why is this a problem? It is a problem because the EIA's weekly data shows U.S. oil supply continuing a steady climb to current all-time highs, while our production-by-play model shows U.S. oil supply has been falling at an increasing pace since March. In this week's Stat we will detail the discrepancy between the EIA's weekly data and our proprietary oil supply model, and show why we think that the EIA's weekly inventory data is not only overestimating U.S. oil production but has completely missed the U.S. oil supply rollover. Put another way, we believe that the misinterpretation of the negative U.S. plug in the weekly oil inventory has sent the signal of an incrementally looser (or bearish) U.S. oil market while we believe U.S. oil production is already falling.

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