EIA Overestimates US Production, Huge Production Drop in the Works #2

This is a follow on to EIA overestimates production

The error in EIA estimates for US production continues to build in a dramatic fashion as told by Unaccounted for Oil.  Unaccounted for Oil amounted to -459k bbl/day or -3.2MM bbl for the week of 1-8-2016.  Unaccounted for Oil has been very negative for 4 weeks out of the last 6 weeks.  The chart above makes it quite clear this is unprecedented at least going back to 2014, and in fact research going back further finds virtually no other occurrences like this one.  Also Unaccounted for Oil is now negative in back to back weeks which is also uncommon.

Again this points to how busted and inaccurate the EIA model is for estimating oil production in the US.  For now few see this or realize what it means as the EIA weekly production estimate continues to rise.  But how can this data be trusted when EIA almost weekly can't explain where the equivalent of 4500 rail cars or 1 or 2 tankers of oil went or possibly never existed.

However, there are some signs showing today that the more sophisticated traders understand.  Futures spreads are showing a major contraction today.  Some may look at the dramatic fall in later dated futures while near dated futures are holding steady as a bearish sign.  However, this is not true.  It means traders see less possibility of a crude glut in coming months and are unwilling to lock in profits for anyone willing to buy and store oil.  The futures spread began to narrow significantly overnight after API reported an inventory draw, and the contraction has maintained even after a bearish EIA report was released.  Going forward we should see a lot less oil being imported since the drop in futures spreads limits or no longer guarantees profits for storage players.

Note:  Even though continued negative unaccounted for oil values should be a bullish indication for oil prices there is a very significant bearish indicator that few are talking about.  Canadian imports to the US have been surging.  In fact this week was a record at over 3.45MM bbl/day and have been surging since summer.  Historically Canadian imports surge through the winter and early spring, but drop off significantly in the summer, so a rise from summer levels isn't totally unexpected, but such a large surge with such low prices is.  Of course Canadian producers could have heavily hedged their production this summer or in September effectively allowing them to sell at prices much higher than current spot prices.