psw01 2016-2-24
I've been saying for quite awhile the EIA weekly production estimation model is way off. It is also possible that since the US started exporting crude, an increase in exports could also be throwing off the model. But from what I've read elsewhere, and what I've seen in well completion reporting I continue to believe the majority of the error is from overestimating lower 48 production.
This week Unaccounted for Oil was -320k bbl/day or 2.24MM bbl for the week. This is the 4th week in a row for highly negative Unaccounted for Oil, which is totally unprecedented. This adds to a string of 8 out of 12 weeks since Dec. 4 with highly negative Unaccounted for Oil. Again very unprecedented. But even more so when you consider Unaccounted for Oil has tended to run positive as detailed in my previous post EIA Overestimates US Production, .... #4. In the last 4 weeks EIA models can't account for -11.7MM bbl of oil. But they continue to tell everyone that US production is holding up pretty well even though Unaccounted for Oil is indicating has averaged -418k bbl/day over the last month, indicating US production could well be 4.6% lower than reported. Do you think that might matter to some market participants? The error looks a little less bad when you look at the 12 week period, which shows -14.5MM bbl that can't be explained or -173k bbl/day, a 2% error.
EIA monthly reports are just over a week away. A prime opportunity for EIA to adjust their models. Look out if they do, because this error will suddenly find its way into the weekly production estimates dragging them down very fast, potentially some weeks could show 75k-100k drops when this hits. When it does, it will squeeze the shorts hard, because nobody expects this. The speculative shorts are still at or near record short levels and the mainstream media continues to indicate US production is barely touched. More importantly dropping US production will encourage OPEC to at least stick to a freeze and possibly redistribute quotas to enable Iran to increase production, ensuring they stick with the greater OPEC plan.
Many have called some of my predictions crazy, but my call on Unaccounted for Oil has been dead on for 3 months. I expect my call on what is coming next for EIA weekly estimates to be correct as well. Not to mention my call that when EIA estimated in January that February production would increase month over month was dead wrong. After three weeks, the weekly data indicates February is down 0.89% over January, and that is using their overestimated numbers. The real proof will be in the April monthly report, but it doesn't look very good thus far for the EIA estimate.
Below I'm including an update to my projection for Production + Unaccounted for Oil. As predicted it continues to track in the lower portion of the channels and is tracking Projection 1 well. Using polynomial curve fitting to project the future is also beginning to confirm this value will track the lower projection line as well. I also noted these projections are based on WTI staying sub $50, the lower WTI stays the steeper the fall off. At this point it may not matter much, US producers are in a semi-panic dropping appx. 30 rigs/week and any brief spike is unlikely to change their production plans anytime soon. I expect very low well completion rates in February and March and rigs to be shutdown quickly until less than 300 are working in the oil fields. I believe every shale CEO now knows to not jump back in too prematurely, even if they hedge. It will just drive down/hold down prices for longer when they need to get back to turning a profit.
psw01 2016-2-24
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