The EIA is the Energy Information Administration based out of Washington DC.\u00a0\u00a0You can learn all about them here – https:\/\/www.eia.gov\/about\/<\/a><\/p>\n The EIA Methodology<\/strong><\/span><\/p>\n Every week the EIA estimates oil inventory, imports, exports and production to give the public a full picture of what happened over the previous week.<\/p>\n If you talk with the EIA or dig into their methodology, one thing becomes clear: they have a much firmer grasp on inventories than any of the other numbers they provide.<\/p>\n Every week the EIA surveys for inventory.\u00a0\u00a0In addition, there are third party data providers like Genscape that make inventory estimates from thermal cameras, satellite images and other innovative techniques.<\/p>\n What it means is that EIA has a lot of confidence in their inventory number.\u00a0\u00a0They know it\u2019s in the ballpark and are confident which base it\u2019s on.<\/p>\n The production numbers on the other hand\u2026.<\/p>\n Weekly production is estimated from the latest available production data from Alaska and a whole bunch of short-term forecasts for the rest of the country.<\/p>\n Those short-term forecasts come from the STEO, or Short-Term Energy Outlook, an EIA modeling exercise which is notoriously inaccurate.<\/p>\n Bottom line \u2013 the weekly data we get is marked-to-model and has a history of being wrong.<\/p>\n Monthly Surveys<\/strong><\/span><\/p>\n The monthly numbers are far better quality than the weeklies.<\/p>\n In 2015, the EIA began to issue a comprehensive, survey based monthly production report (the EIA-914).<\/p>\n The survey used in the report included all major production areas.\u00a0\u00a0According to the EIA at least 85% of production within a state is surveyed. Overall, they assert that 94% of production in the country is accounted for.<\/p>\n Even though the methodologies differ, over time the weeklies and the monthly data have tracked each other fairly well.<\/p>\n There are some that say this is because the EIA plays with the weekly data if they need to get it back inline with the monthly numbers.<\/p>\n Whatever the backroom mechanics, the data is usually fairly close over time and if anything, the monthly data has a history of showing higher production than the weeklies.<\/p>\n Source: EIA Data<\/em><\/p>\n That is, until recently.<\/p>\n First, let me be clear \u2013 there is very little discrepancy between the two datasets for the last few comparable periods.<\/p>\n In fact, if you looked at the September data alone, you would conclude that the weekly and monthly numbers agree extremely well.<\/p>\n The monthly data for September, which is the last reported period, is showing about 12.46 million barrels per day of production.<\/p>\n The weekly data agrees with that \u2013 the September weeklies bounced between 12.4 and 12.5 million barrels per day.<\/p>\n No problem, right?<\/p>\n Well, maybe.\u00a0\u00a0The problem is in the trend.<\/span><\/em><\/p>\n Taking a step back to look at a longer time horizon, the two datasets are telling different stories about the trend in production since around the fourth quarter of 2018.<\/p>\n \u00a0 Source: EIA Data<\/em><\/p>\n Weekly data started the year at 11.7 million barrels per day \u2013 which means up to the September numbers, there was\u00a0700,000-800,000 barrels per day of growth<\/span><\/em>\u00a0in production.<\/p>\n The monthly data is showing much more modest growth.\u00a0\u00a0Only a little over\u00a0400,000 barrels per day<\/span><\/em>\u00a0for the first 9 months.<\/p>\n Looking through to December, the weekly data continues to show production climbing.\u00a0\u00a0The most recent numbers have production at 12.9 million barrels per day.<\/p>\n Clearly if the weekly data is correct then US growth has not slowed that much this year \u2013 1.2 million barrels per day of growth is huge!<\/p>\n But if the monthly trend is correct then maybe this is a different story all together.\u00a0\u00a0It is telling us the U.S will add maybe half a million barrels per day by year-end.<\/p>\n That would be\u00a0very<\/em>\u00a0bullish for crude prices.<\/p>\n The Next Few Months with be Telling<\/strong><\/span><\/p>\n There are two noticeably different trends here and it is too early to say which is right.<\/p>\n The simplest way that I can see this resolve is if the monthlies \u201ccatch up\u201d to the weeklies.<\/p>\n In other words, we see large production increases in October and November, it confirms that crude production has grown as expected and the crude oil market continues to muddle along.<\/p>\n If that happens, then this is all much ado about nothing.\u00a0\u00a0What we are seeing here is not a trend, its noise.<\/p>\n But what if the monthlies don\u2019t confirm the production increase at year end?\u00a0\u00a0What if the trend continues along the same line it has followed since late-2018?<\/p>\n In other words:\u00a0what if the monthly data is telling us that the supply-demand balance is quite a bit tighter and the Permian rollover is already happening?<\/em><\/p>\n To conclude:<\/p>\n Anecdotally, what we hear from producers and servicing companies line up much better with a trend of flatter numbers.<\/p>\n The rig count has trended down all year.\u00a0\u00a0In fact, there was a slowdown that began in the fourth quarter of 2018 (is it coincidence that this is the same time the monthly data began to flatten out?).<\/p>\n Commentary coming out about the fourth quarter of this year point to this slowdown continuing.<\/p>\n On top of that you have the decline rates.\u00a0\u00a0Just this week IHS estimated that base decline rates in the Permian were 40%.<\/p>\n That means that\u00a01.5 million barrels per day of production<\/em>\u00a0need to be replaced next year just to keep production flat.<\/p>\n Shale production is on a treadmill that needs to run very fast.<\/p>\n I\u2019m still taking a wait and see approach, but my interest here is piqued.<\/p>\n The next couple of monthly numbers will be key.\u00a0\u00a0If the monthly numbers don\u2019t show a pop up to 12.8 or 12.9 million barrels per day it will be a huge red light for production growth.<\/p>\n And a green light to buy well positioned oil stocks.<\/p>\n Keith<\/em><\/p>\n Become a Paid Subscriber to get access to my top energy picks, and more, by clicking HERE<\/a><\/p>\n![\"1\"](\"http:\/\/oilandgas-investments.com\/wp-content\/uploads\/2011\/10\/1.jpg\")
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