- September 28, 2018
- Posted by: Art Berman
- Category: Presentations & Publications
This type of information are very essential and will ease the peoples mind specially this time of crisis. It really needs an expert to understand supply and demand of oil pricing
I enjoy the work you do and agree with most of it. But, when you use EIA inventory data to prove or make your point, I think you drastically tarnish your point to the point that no proof or explanation is offered. I have tried to explain this to you before, but I received no response. Therefore, I will try to keep this as short as possible.
I think we would agree there are two types of inventory – (1) inventory on hand, and (2) inventory in transit. The basis of my claim is the way the EIA counts inventory in transit. They call and count inventory in transit by another term in their data – “Pipelines and Storage”. Take a look in the EIA data and you will see it.
In fact, right there by it is what we would call inventory on hand – “Refinery inventory”.As we know, around 2005, domestic production inflected and started to grow again. In fact the shale revolution caused a very significant and large growth in domestic production.
And, that is where their inventory reporting breaks down. They count domestic produced oil in transit essentially from the time it reaches the surface of the well or field. For sure they count those barrels as they are collected and stored in fields. Further,they are also counted as thy are transferred to and stored at transmission locations like Midland and Cushing.
Still further, they are counted as they are stored at those sites and then transmitted to refining centers. Together all of this accounts for a very large amount of oil. While inventory on hand (Refinery inventory) has shown virtually no change over the last 10 or 20 years, as domestic production has grown, inventory in transit (Pipeline and Storage) has grown steadily.
But, here is the rub. We had (and do have now until now) inventory in transit back in 2005 to today. It obviously is called imports. The problem is that the EIA never counted those waterborne or Pipeline barrels that came as imports. So over time as domestic production grew and began to replace imports, inventories also began to slowly grow. And, all of that growth is in inventory in transit.
Consequently, a comparison of inventory over time for genuine purposes as you did, is IMO totally tarnished. I verified this counting procedure with the EIA on the phone and they agreed with me. I tried to get them to make this point to the market, clearly. They stopped talking to me. So comparisons over time, have very little value.
And, BTW don’t forget your very own very good paper that pointed out we had about a billion barrels of oil in the “Unaccounted for oil storage tanks”. When you start counting the balance of an adjustment number over time – it’s a very big problem.
Also, you’ll like this. The EIA told me they get weekly import numbers from the Customs Department. Customs allows incoming voyages to report their cargo towards the weekly import number, as much as two days away from port location. Clearly, that can cause big variations in those numbers.
Unfortunately the relatively large weekly inventory balances are not going to run off to levels that were reached before 2005 and the shale revolution. They won’t reach levels that should signal prices upward. And, really unfortunately the major oil companies are delaying spending on large projects that will be desperately needed in the not too distant future.
Oh. And, I won’t mention that we are mostly producing condensate – not oil, a fact you well know. Good luck. Best regards,