The EIA X Factor

Oil prices started out strong on U.S.-China trade talks only to fade as reports of whether all in the Trump administration are ready to lift tariffs. With U.S. trade war uncertainty, oil is continuing its volatile uptrend.

Yet what was key was the fact that oil seemed to forget all about the 7.9-million-barrel crude build that was reported by The Energy Information Administration (EIA) and rallied like there was no tomorrow. Despite that big weekly build, the fact is that maybe a 7.9-million-barrel crude build isn’t quite what it used to be. In fact, perhaps many of us, including myself, may have been looking at the data incorrectly, mainly because of the sheer size of the U.S. oil market, as well as trying to read too much into weekly export numbers.

Yesterday I had the pleasure of speaking with Robert Merriam of the EIA. Mr. Merriam says that despite the recent criticism of data, on average the EIA data is mostly correct. Yet, because of the explosive growth of U.S. oil production and the fact that the U.S. is now a major energy exporter, we are going to see a wider weekly swing in inventory that may or may not swing back over time.

Mr. Meriam said that where I am getting it wrong is understanding how the EIA collects its data. Mr. Merriam says that “Unlike most of the data we publish each week that is collected and validated by EIA directly, including refinery runs, imports, and inventory data, for exports EIA relies on raw Customs data reported that is shared with us to estimate weekly exports. But the key point here is that both exports and imports are reported in the reporting week that they clear U.S. Customs. 

Clearing U.S. Customs is more of an administrative transaction based on the importer having all the information required and filed with Customs, and one that is consistent and objective for respondents to apply; but it is not based on the physical location of the vessel, nor its loading or unloading status. That’s the key reason that ship tracking services may report comings and goings of vessels that don’t match EIA’s weekly estimates for imports (or exports) in any given week, but over a longer stretch, those timing differences between the observed physical locations and clearing U.S. Customs even out to match pretty well. 

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