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This Week in Petroleum

Release date: July 17, 2019  |  Next release date: July 24, 2019

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The crude oil adjustment accounts for differences in supply and disposition

The U.S. Energy Information Administration’s (EIA) Weekly Petroleum Status Report (WPSR) provides weekly estimates of U.S. crude oil supply, including a measure of how well the supply of crude oil and the disposition of crude oil balance with each other. This measure—referred to as the adjustment—is a derived term equal to the difference between supply and disposition. If the reported supply and disposition of crude oil balanced perfectly each week, the adjustment would equal zero. For several reasons, however, this is rarely the case.

Weekly U.S. crude oil supply and disposition data are based on a combination of EIA survey data, U.S. Customs and Border Protection data, and modeled estimates. All statistical samples using survey data have small but unavoidable imprecisions, and model estimated data’s precision can vary. This imprecision in estimating each element of the crude oil balance can result in some over- and under-estimation in both supply and disposition.

In recent weeks, the crude oil adjustment has been growing in absolute value, as high as 881,000 barrels for the week ending May 24. However, this is still relatively small, when compared with the entire U.S. crude oil balance, less than 2.5% on a rolling four-week average basis (the sum of production, imports, exports, and refinery inputs) (Figure 1). Although an increased adjustment is, in some part, the result of the inherent challenge of estimating perfectly each reporting period, increasing volumes of U.S. crude oil production and exports and other factors may also play a role. EIA will continue to evaluate crude oil data to identify possible sources of the higher crude oil adjustment.

Figure 1. Absolute value of weekly crude oil adjustment as a percent of total crude oil balance

EIA’s crude oil balance represented algebraically is:
domestic production + imports – stock draw = refinery inputs + exports + stock build

Ideally, in each reporting period the sum of the elements of supply (left-hand side of equation) should equal the sum of the elements of disposition (right-hand side of equation). However, the process of creating each balance element involves uncertainties due to either the collection of large amounts of data from a large number of respondents or the use of statistical estimation methods. For the WPSR, EIA collects survey data for imports, refinery inputs, and stock levels, but models estimates for production and weekly exports. In some cases, the amount of data, the number of respondents, and the resources needed to collect it weekly make doing so impractical, such as with crude oil production. EIA therefore applies rigorous statistical methodologies to develop estimates for these balance elements.

Both statistical sampling with surveyed data and reliance on modeled estimates create varying degrees of imprecision with each element in the U.S. crude oil balance. Because of this collective imprecision, supply and disposition do not often equal each other. Therefore, EIA derives an adjustment equal to the difference between the two: a positive value implies the sum of disposition is greater than the sum of supply, and a negative value implies the sum of supply is greater than the sum of disposition (Figure 2). Because the crude oil adjustment represents the cumulative uncertainty around each element in the U.S. crude oil supply and disposition balance, it is incorrect to assume any one element in the crude oil balance is entirely responsible for the adjustment.

Figure 2. U.S. Crude oil balance

Although the sources of imprecision in EIA collected and estimated data—and therefore the source of the adjustment—will vary from week to week, EIA has identified several constant sources. For example, as U.S. crude oil production and crude oil exports have increased significantly in recent years, the uncertainty around each has also increased, contributing to a larger derived adjustment. For domestic crude oil production, EIA derives an estimate from its latest Short-Term Energy Outlook (STEO) model and the latest available production estimates from Alaska. For exports, EIA has used unprocessed near-real-time export data provided by U.S. Customs and Border Protection (U.S. CBP) to estimate crude oil and petroleum product exports since August 2016.

As U.S. production of crude oil has increased, so too has the volumetric imprecision surrounding EIA’s weekly crude oil production estimates. In other words, when U.S. crude oil production was 7 million barrels per day (b/d), an imprecision of plus or minus 2% would represent a range of 280,000 b/d. Because U.S. crude oil production is 12.1 million b/d in the latest monthly data, an imprecision of plus or minus 2% increases to a range of 484,000 b/d. In addition, because EIA’s estimated weekly crude oil production data are based on STEO modelling and lagged monthly data, any rapid change in crude oil production trends may not be fully represented until they appear in monthly data.

Additionally, both EIA’s data for imports, collected by the EIA-804, Weekly Imports Report, and the U.S. CBP data, which captures exports, have the potential for timing discrepancies. For example a volume of crude oil may clear U.S. Customs, and thus appear in EIA data as an import or export in one week, but it may physically arrive or depart in another week, causing a disconnect between the volumes traded and volumes reported in inventory.

Weekly export data estimates experience several other challenges. EIA receives raw, unedited U.S. CBP data without the ability to directly validate reported data with those filers. EIA also must add estimates for data not reported by U.S. CBP, such as crude oil exports to Canada. Because U.S. exports of crude oil increased to 2.8 million b/d in April, the volumetric imprecision of crude oil export data also increased to a range of 132,000 b/d at plus or minus 2% (Figure 3).

Figure 3. U.S. Crude oil production and exports

Other factors possibly contribute to a higher crude oil adjustment, but they are challenging to identify or quantify with data that are currently available from EIA’s surveys and other sources. These factors include condensate from natural gas processing plants added to the crude oil supply chain and unreported blending of other oils with crude oil.

Volumes of very light crude oil, also known as plant condensate, that get separated out from wet natural gas streams at natural gas processing plants may be ending up in the crude oil supply chain. These volumes would then get counted as crude oil inputs into U.S. refineries or exports without being captured as crude oil production or supply in EIA data. In this instance, EIA data would capture the wet gas-derived condensate being input into refineries or exported as disposition without capturing its production, contributing to an under-estimation of supply. While EIA is considering changes to the EIA-816, Monthly Natural Gas Liquids Report, to capture this activity, this data collection was not expanded for the current 2019 survey clearance process. EIA plans to consider this change for a future clearance.

Volumes of low-gravity, non-crude oil liquids may be blended with crude oil and then delivered to a refinery with the entire volume reported to EIA as refinery inputs of crude oil. In this case, the result would be disposition of crude oil (refinery inputs) without a corresponding supply of crude oil.

Despite these issues, EIA’s weekly data provide an accurate representation of the overall status of U.S. crude oil supply and disposition and a good estimate of each of the individual elements to derive it. The adjustment is a transparent acknowledgement of the small imprecisions around the large data elements used to make a U.S. crude oil supply and disposition balance. At this time, it is still unclear if the higher-than-normal weekly crude oil adjustment is transient or is a signal of a structural change. However, EIA will continue to work with survey respondents and study new survey and statistical methodologies as part of its ongoing data quality efforts to minimize the size of the adjustment.

U.S. average regular gasoline price increases, diesel price declines

The U.S. average regular gasoline retail price increased nearly 4 cents from the previous week to $2.78 per gallon on July 15, 9 cents lower than the same time last year. The Midwest increased nearly 10 cents to $2.76 per gallon, the Gulf Coast price increased nearly 4 cents to $2.46 per gallon, and the East Coast price increased nearly 2 cents to $2.68 per gallon. The Rocky Mountain price fell nearly 3 cents to $2.77 per gallon, and the West Coast price fell more than 2 cents to $3.36 per gallon.

The U.S. average diesel fuel price decreased less than 1 cent to $3.05 per gallon on July 15, 19 cents lower than a year ago. The Midwest price decreased more than 1 cent to $2.96 per gallon, the Rocky Mountain price decreased nearly 1 cent, remaining at $2.98 per gallon, and the East Coast price decreased slightly, remaining at $3.08 per gallon. The Gulf Coast price increased slightly to $2.81 per gallon, while the West Coast price was unchanged at $3.62 per gallon.

Propane/propylene inventories rise

U.S. propane/propylene stocks increased by 0.5 million barrels last week to 77.5 million barrels as of July 12, 2019, 3.7 million barrels (5.0%) greater than the five-year (2014-2018) average inventory levels for this same time of year. Midwest, Rocky Mountain/West Coast, and East Coast inventories increased by 1.1 million barrels, 0.4 million barrels, and 0.2 million barrels, respectively. Gulf Coast inventories decreased by 1.2 million barrels. Propylene non-fuel-use inventories represented 5.6% of total propane/propylene inventories.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

Tags: crude oil , exports/imports , inventories/stocks , oil/petroleum , production/supply

Retail prices (dollars per gallon)

Retail price graphs
  Retail prices Change from last
  07/15/19 Week Year
Gasoline 2.779 0.036 -0.086
Diesel 3.051 -0.004 -0.188

Futures prices (dollars per gallon*)

Futures price graphs
  Futures prices Change from last
  07/12/19 Week Year
Crude oil 60.21 2.70 -10.80
Gasoline 1.977 0.047 -0.130
Heating oil 1.980 0.075 -0.153
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

Stock price graphs
  Stocks Change from last
  07/12/19 Week Year
Crude oil 455.9 -3.1 44.8
Gasoline 232.8 3.6 -3.1
Distillate 136.2 5.7 14.9
Propane 77.477 0.544 12.221