I've determined that I should have started a blog series on this topic months ago and called it EIA Misstates US Production. I've added the US production data from the monthly reports. It shows the weekly production estimate made a wide divergence to the low side in the July-November 2015 window. So a false rise in production has been shown in the last 3-4 months to account for a drastic understatement earlier.
Still the drastic negative values for Unaccounted for Oil and therefore the very low values for US Production + Unaccounted for Oil point to a major fall in the works or one that already exists. If one looks at the monthly data, which lags 2 months, you can see that US production fell 65k bbl/day per month from September to November. Is it really believable then with the very low prices in November, December and January that US production is rising, especially in the lower 48? When you look at well completion rates in Texas and ND the answer is clearly no. The most recent data for Texas oil well completions is shown in the above chart and the most recent ND well completion data can be found here ND Oil Well Completions. A generous nod to the EIA estimate using the monthly data for a guide and a 65k bbl/day/month rate of decline, puts current production at 9.19MM bbl/day compared to the EIA 9.21MM bbl/day estimate. Which makes the EIA estimate close. However, the EIA monthly data shows a 79k bbl/day drop from Sept. - Oct. while completion rates were much higher than in recent months and the 5% decline rate for shale wells leads one to believe recent declines are likely more like 100k bbl/day/month. This would put US production at 9.02MM bbl/day on average for January, and would project about 8.9MM bbl/day for February. This also means current production levels could actually be about 8.95MM bbl/day.
Since Dec. 4, US Production + Unaccounted for Oil has come in under 8.8MM bbl/day 5 weeks out of 9. The frequency and magnitude of the negative Unaccounted for Oil swings below the reported US production number points to something very major in the works for US production.
Since Alaskan production typically increases in the winter, and shale wells are in the lower 48, not Alaska, the brunt of any declines is really in lower 48 production. This really calls into question the lower 48 production number which has been estimated at exactly 8.703MM bbl/day for each of the last 3 weeks. The fact that lower 48 production is estimated to be exactly the same for 3 weeks running in the face of drastic rig count cuts, lower prices and few completions, points to an EIA weekly estimation model that currently has little clue what is really happening.
What does this all mean? Currently EIA shows 8.703MM bbl/day production for the lower 48. Realistically lower 48 production could be in the 8.35-8.45MM bbl/day range. My feeling is the huge surge in Canadian imports has confused the US production estimation models since it is causing unexpectedly large US inventory builds for the season. So if we see Canadian tar sands production drop off in the coming months--maintenance is scheduled to start in March, but given the low price environment many producers want to move up schedules--we should also start to see massive drop offs in reported US production. Until the models catch up we will continue to see frequent and large negative values for Unaccounted for Oil.
It remains my belief that computerized trading systems pick up on and trade based on the Unaccounted for Oil data. This weeks move up post EIA report was entirely credited to hopes for a Russian + OPEC cut, but if that is the case why did futures immediately drop when the data was reported and then surge rapidly in the following minutes, while the Russian reports had been out for hours with little reaction. The CFTC COT reports also show that swap dealers, refiners and some other professionally managed money is growing heavily long now. Could it be that those with the closest ties to the physical oil, know something the rest of us don't and the Russian/OPEC production cut talks are just a distraction from where the real cuts are coming from and the magnitude.
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