- 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.
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
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.