Nicole Friedman
In today’s oil market, even the data providers are frustrated with the data.
Market watchers have become obsessed in recent weeks with “missing barrels,” or the idea that total supply-and-demand figures from forecasting agencies show that the market is more oversupplied than market behavior suggests. Some say the physical market is actually better balanced than the data show, either because production is lower than reported or demand is stronger.
In its monthly report released today, the International Energy Agency – whose forecasting reports are the most widely followed by energy traders – acknowledged that this might be the case.
“Statistics…have a poor track record of capturing rapid market changes, as the statistical process often entails adjustments and extrapolations from recent trends, which naturally tend to assume business as usual,” the agency said. “Current markets could thus be tighter than reflected in recent data.”
One major problem is that drilling technology and behavior has quickly adapted to low prices, making production more efficient and cheaper than it was last year or even last quarter. This is especially true in the U.S., where shale-drilling technology is only a few years old.
The confusion over U.S. output was underscored this week by somewhat conflicting reports from the Energy Information Administration, another closely followed forecasting agency.
The EIA on Monday said that oil production in some key shale-producing regions fell in May and would continue to fall in June and July. The news boosted prices.
But then came a double whammy of more-bearish figures. On Tuesday, the EIA raised its forecast for U.S. oil production this year and next, and on Wednesday the agency reported that production last week had climbed to a fresh multi-decade high of 9.6 million barrels a day.
So, is U.S. output rising or falling? Is the global oil market vastly oversupplied or quickly coming into balance? We wish we knew.
“The estimates of the rate at which tight-oil production will decline published in EIA’s [Monday report] are indefensible,” said Andy Weissman, chief executive of EBW AnalyticsGroup, in a report.
The EIA lacks information on the ways in which companies are drilling more efficiently or prioritizing more-productive wells, he noted. “Without this data, it is impossible to make credible estimates. Publication of estimates developed using this methodology is inherently misleading, and potentially causing serious harm.”
Still, he noted – “in this regard, EIA is no different than anyone else assessing the market.”
By blogs.wsj.com
