US Oil Data Is A Lot Better Than You Think

EIA's oil storage report today was bullish and the lower-than-expected crude build all but verifies one important truth we've been hammering away in recent weeks: US oil production is underperforming.

Historically, US shale oil producers spend most of their capex in the second half of the year. There are many reasons for this, but the two primary ones are 1) better pricing/seasonality and 2) reserve reporting.

As a result, drilling usually picks up in Q3 with production surging into Q4. This is not a surprise to anyone who's been following US shale from the beginning. In Q4 2018, for example, EIA's weekly crude storage reports kept coming in meaningfully higher than our estimates. Most of the difference was attributed to a positive adjustment figure. Two months later when EIA published its EIA 914 report, it was revealed that most of the surprise came from a surge in production.

Luckily this time around, we aren't seeing that. In fact, it's been the exact opposite with EIA showing meaningfully less crude build than our estimates. While we have improved the process materially since then, the delta shouldn't be more than ~6 million bbls.

Looking at our real-time US oil production tracker, US oil production is currently around ~13.2 million b/d or ~100k b/d lower than where it's supposed to be.

This is a good sign and it indicates to me that the likelihood of US oil production surprising to the upside by year-end is low.

But it's not just US oil production that's surprising to the upside, the demand side is also much better than people expected.