Oil Price up in July: Where does it go now?
Posted: Sat Aug 01, 2020 9:47 am
WTI crude futures settled up 0.9% at $40.3 on Friday, booking a third straight month of gains helped by a weaker dollar and a report from the US Energy Information Administration saying that US crude oil output tumbled by a record pace in May. In addition, investors cheered news that factory activity in China rose for the fifth month in a row and hoped for more stimulus in the US after official data showed the economy collapsed at a 32.9% annualized rate in Q2. Still, the recovery may be short lived as OPEC+ plans to increase output from Saturday, adding about 1.5 million barrels per day to global supply.
In my opinion, the "eye opening news" from EIA on Friday was that U.S. oil production dropped MUCH FURTHER in May than EIA told the market.
> EIA's 941 report came out on Friday. It shows that ACTUAL U.S. oil production declined from 11,990,000 bbls per day in April to 10,001,000 bbls per day in May. < A RECORD DROP.
> EIA's weekly estimates for May told the market that U.S. oil production averaged 11,520,000 BOPD in May.
As I have posted here many time, EIA's weekly reports are just estimates based on flawed formulas. THEY MISS MAJOR TURNS IN PRODUCTION because they are heavily weighted to the trend. If oil production has been going up, EIA's math experts think it will keep going up. U.S. oil production peaked in November, 2019 at 12,860,000 bbls per day, but EIA kept reporting growth through mid-March. For the week ending March 13th EIA said U.S. oil production was 13,100,000 bbls per day. Actual U.S. production was only 12,737,000 BOPD in March. < That is not a huge mistake, but it did mislead the oil traders because it implied that U.S. oil production was going up when it was actually going down.
Now that EIA is aware that their estimates for May were way too high by 1.5 million BOPD it will be interesting to see if they make an adjustment to their weekly estimates going forward.
In my opinion, the "eye opening news" from EIA on Friday was that U.S. oil production dropped MUCH FURTHER in May than EIA told the market.
> EIA's 941 report came out on Friday. It shows that ACTUAL U.S. oil production declined from 11,990,000 bbls per day in April to 10,001,000 bbls per day in May. < A RECORD DROP.
> EIA's weekly estimates for May told the market that U.S. oil production averaged 11,520,000 BOPD in May.
As I have posted here many time, EIA's weekly reports are just estimates based on flawed formulas. THEY MISS MAJOR TURNS IN PRODUCTION because they are heavily weighted to the trend. If oil production has been going up, EIA's math experts think it will keep going up. U.S. oil production peaked in November, 2019 at 12,860,000 bbls per day, but EIA kept reporting growth through mid-March. For the week ending March 13th EIA said U.S. oil production was 13,100,000 bbls per day. Actual U.S. production was only 12,737,000 BOPD in March. < That is not a huge mistake, but it did mislead the oil traders because it implied that U.S. oil production was going up when it was actually going down.
Now that EIA is aware that their estimates for May were way too high by 1.5 million BOPD it will be interesting to see if they make an adjustment to their weekly estimates going forward.