Revising the Past – US Oil Production Data

This article is based on the EIA's Monthly Energy Review which was released on 27th January and which states November 2015 production was 9,181,000 bbls/day. Oddly, the Petroleum & Other Liquids monthly data which was released on 29th January says November 2015 production was 9,318,000 bbls/day. Which one is the one the EIA intend us to use?

As I have said before the US Energy Information Agency (the EIA) has a thankless task, compiling data from thousands of oilfields and operators to come up with an estimate of how much oil the USA actually produces. Some data is timely and accurate, Alaska is a case in point, some, not so much.

So every month as well as giving us a new estimate for the month just passed, we get revisions of the historic data. It is instructive to take a look at that data to see how far off the early estimates were. Big revisions are a sign of a dislocation in the system, a sign that the old rules of thumb aren't working any more. The EIA has suffered from this phenomenon on the way up, as US shale output outstripped any reasonable estimates of how it might perform; and now on the way down, as somehow the whole US oil industry did a passable impersonation of Wile E. Coyote, well beyond the edge of the cliff but somehow defying gravity.

The changes can be very big. Look at the line that comes to a halt in April 2015, these are the numbers from the May 2015 Short Term Energy Outlook, those estimates were about 340,000 bbls per day less than what the EIA now think. About as much as people are estimating Iran might be able to add to the market and which is now causing fear and trepidation amongst oil bulls. On that point I am a tad sceptical, not having been born under a gooseberry tree. 

The same then happened on the way down. As the oil price collapsed and rigs were stacked, it seemed in September that the decline was well established and that the US would soon be producing less than 9 million barrels per day. I confidently tweeted that projection, but I was dead wrong. Month after month the previous estimates were raised and the impending collapse was deferred. This continued right up to the last estimate of historic monthly production, published at the end of December, and used in the January 2016 Short Term Energy Outlook, the pale blue line on the graph. At that time, virtually the whole of 2015 was revised upwards by nearly 100,000 bbls per day.

But on the 27th January the EIA published a revision to the numbers (which will be used in the February 2016 STEO) which bucked that trend and started to revise the past downwards. That is the dark blue line on the chart, which tracks the pale blue line for most of the year but includes a 140,000 bbls per day reduction in the estimate of November 2015 production.

We can be confident of one thing the revisions to the past aren't finished, and given the dramatic fall in the oil price from November to January, and the drastic cuts in US operators budgets for 2016 it seems to me that US production will soon decline below 9 million barrels per day, my estimate is that that threshold will be crossed in February and that the US will exit 2016 producing about 8.4 mmbbls/day.

But take that all with a pinch of salt. It is hard enough estimating the past let alone, predicting the future.