- January 21, 2020
- Posted by: Art Berman
- Categories: Presentations & Publications, The Petroleum Truth Report
Unaccounted-for oil was the largest factor in crude oil stock changes in 2019. For the first 10 months of the year, U.S. crude oil stocks should have fallen 137 mmb based on ordinary input and output components. Instead, stocks only declined 5.5 mmb because there was 132 mmb more oil in the system than those factors indicated (Figure 1).
That additional oil is what EIA calls unaccounted-for oil.
Earth to EIA: Unaccounted-for oil is big problem.
What is Unaccounted-For Oil?
Unaccounted-for oil is the difference between the supply and disposition of crude oil. In other words, it is the difference between the amount of oil that should be in the system and the amount that actually is in the system. EIA uses this term to describe that volume in the Weekly Petroleum Status Report.
It is called the “Crude Oil Supply Adjustment” in EIA’s monthly Supply and Disposition report. Many analysts assume that monthly data minimizes the difference between supply and disposition found in weekly reports.
That is not correct. The supply adjustment has, in fact, been greater than unaccounted-for oil since January 2016 (Figure 2). The weekly average supply adjustment so far in 2019 has been more than 3 mmb per week, and unaccounted-for oil has been almost 2.8 mmb. That represents a 58% and 50% increase, respectively, over 2018.
Although this data suggests that the volume of extra oil in the system is increasing, it is a mistake to assume that unaccounted-for oil is something new. Figure 3 shows that the adjustment has been a permanent part of U.S. oil supply at least since 1973 when the first global oil shocks began. 2.2 billion barrels of supply adjustment have accrued since then.
Source: EIA and Labyrinth Consulting Services, Inc.
Bad Arithmetic
EIA summarized its position on unaccounted-for oil in a post from 2015:
“Compared to the millions of barrels in the overall balance, the adjustment is quite small, and it generally demonstrates a good match between the various components driving crude oil supply and use.”
Let’s examine a similar statement and figure below from EIA’s This Week in Petroleum for July 17, 2019. Here, EIA states that 881 kb/d of unaccounted-for oil represented approximately 2.5% of the supply balance for the week ending May 24, 2019.
The supply balance equation and relevant data for that week are shown below:
Field Production + Net Imports – Refinery Intakes = Supply Balance
Source: EIA and Labyrinth Consulting Services, Inc.
The supply balance for that week was -922 kb/d. Adding 881 kb/d of unaccounted for oil correctly resulted in a stock change of -41 kb/d. Unaccounted-for oil represented 95.6% of supply balance.
The same data in the row “EIA (absolute value)” results in a supply balance of 32,612 kb/d and unaccounted-for oil is only 2.7% of that calculation. The problem is that EIA adds refinery intakes to field production and net imports instead of subtracting them. The resulting 32,612 kb/d is NOT the supply balance but the sum of all inputs and outputs to the supply balance equation. Refinery intakes are after all the same barrels provided by field production and net imports and not an additional supply source.
EIA, therefore, minimizes the magnitude of unaccounted-for oil with bad arithmetic.
Unaccounted-for is too large to be an adjustment factor. Because it has persisted as an unresolved and significant volume over nearly 50 years of data collection, it cannot realistically be explained by imprecise reporting or errors in data integration. It must, therefore, be real.
It is beyond the scope of this post to explain the source of unaccounted-for oil. My purpose, rather, is to dispel the absurd notion that it is insignificant or doesn’t matter.
Very insightful article for me, Art. I pay attention enough to be aware, but not enough to dig into it for cause / effect / consequence. You do a great job breaking it all down. Thank you, Drew
Thanks for your comment, Drew.
Hi Art. Why do you think it has mainly a positive value? What might be behind it?
Jorge,
It mostly has a positive value because it is oil that was previously produced and was kept in private, off-book storage not monitored by EIA. It almost has to be a positive flow unless it is a true adjustment–that is not the norm.
Best,
Art
Thanks for the post about this (according to me) under-rated subject. I understand your arguments, but I don’t see what consequences it might on oil market in the future, knowing that this is a phenomenon obeserved since 1972?
I believe unaccounted-for oil may be an over-the-counter pre-paid futures agreement and is, therefore, a source of capital for shale producers outside of market credit. If so, it is a “dark inventory” whose effect has been to keep oil prices low by effectively manipulating weekly storage reports. It is not a conspiracy nor is it illegal. It is, however, a component of the oil trade that is invisible to everyone except those who own the oil and those who produce and store the oil.
Best,
Art
Maybe we should call it “crypto-oil”.
Hi Josh,
Maybe but I don’t think there is anything secret or special about unaccounted-for oil except that EIA isn’t able to account for it!
Best,
Art
Art,
I have been listening to your podcasts for years. Have you read this retort to your theory on Seeking Alpha?:
https://www.google.co.nz/amp/s/seekingalpha.com/amp/article/4314469-unaccounted-for-crude-oil-mystery
It does not make much sense to me, as the author suggest the missing oil is occurring on the output side of refineries (diverted to petrochemical manufacture). Wouldn’t this situation contribute to a positive supply balance? Confused. He uses the 2% figure for unaccounted oil, which you show to be bad arithmetic. He also argues all oil storage facilities (over 1000 barrels) must report their inventories. Any thoughts?
Thanks for the link. Boslego clearly has no understanding of unaccounted-for oil. It is crude oil and condensate flowing into storage. Crude going into refineries is part of the supply balance equation and refined products coming out are part of “product supplied.” He is, unfortunately, wholly ignorant about his subject.
Best,
Art
Here is the comment I left on Boslego’s blog:
“You clearly have no understanding of how the U.S. crude oil and refined product system works. Read the definition of unaccounted-for oil. The “disposition” included in its definition is disposition of crude into refineries as crude oil and not refined products coming out the other end. Refined product is accounted for as “product supplied” and can be found reported weekly in EIA’s petroleum status report. Your analysis is flawed by lack of understanding of the basics you are analyzing.”
Art, great article! do you have any comments on the outlook for 2020? Would this keep WTI prices under 60$ for the year?
Jayero, I don’t see UAO volumes changing anything because it has been such a large factor for inventories for several years.
Best,
Art
Thank you Art , your research is Excellent . You point out that since 1973 there has been approx 2.3 Billion barrels of unaccounted Oil ( so over the past approx 47 yrs ) yet the Recent Data for 2019 appears much higher . My guess is the Govt is somehow involved and is playing Games to manipulate / control price
Jerry, I doubt that the government is manipulating anything. UAO is produced oil that was stored and later released. That’s why it is unaccounted-for. because its appearance on the market was delayed.
Best,
Art
Art,
Wow! EIA ADDS refinery intakes to get Supply Balance?? The absolute value seems only to obfuscate what is really happening and is certainly bad arithmetic. Is there any reason or value added in the absolute value of Supply Balance that EIA calculates and reports?
Thanks and best regards,
Sam
Sam,
I cannot understand EIA’s arithmetic on this. It’s baffling.
Art