How sweet it is! This post is for Bulls only - the Bears won't believe it anyway. Fundamentals not improving? Hmmmmmm.
Energy News
Wed, 10 Mar 1999, 8:43am EST
U.S. Says Its 1998 Oil Demand, Inventory Estimates Inaccurate
U.S. Says Its 1998 Oil Demand, Inventory Estimates Inaccurate
Washington, March 10 (Bloomberg) -- A federal agency whose
estimates help determine the price of oil says it underestimated
U.S. demand and overstated U.S. production for much of 1998.
The Energy Information Administration, part of the
Department of Energy, underestimated U.S. annual oil demand by
142,000 barrels a day, or 0.7 percent of the U.S. total, from
January through September, according to revised government
figures. It overestimated U.S. output by 66,900 barrels a day, or
1.1 percent, through November.
While the errors were not large in percentage terms, oil
prices can swing widely based on small movements in supply and
demand. Prices, which fell to record lows during the year, were
probably lower than they would have been had the federal
estimates been correct, industry observers say.
''The sharp drop in oil prices was due mainly to
fundamentals, but also in part to market psychology,'' said
Lawrence Goldstein, president of Petroleum Industry Research
Foundation Inc. ''Had this (the inaccurate estimates) been known
earlier, it would have had a moderating effect.''
If the errors were made for all of 1998, demand was
understated by 50 million barrels, and production overstated by
24.4 million. Final figures for the year weren't immediately
available.
The EIA blames the inaccurate estimates on incomplete
reports by U.S. oil companies struggling with economic turmoil
caused by the lowest inflation-adjusted oil prices since the
Great Depression.
Changes in staff and operations because of mergers and
firings made it more difficult to get timely and accurate
responses to its queries, the EIA said. Low oil prices have
brought a wave of consolidation to the industry.
Missing Barrels
The inaccurate estimates may be part of the answer to the
mystery of the ''missing barrels'' of 1998. Throughout the year,
oil analysts and traders were puzzled that global oil production,
consumption and inventory figures left 300 million barrels of oil
unaccounted for.
Industry experts debated whether calculations were
inaccurate, or if the missing oil was in storage in ships
floating offshore or in tanks in producing countries. If the
missing oil had eventually flooded the market, it would have
further depressed prices.
In addition to demand statistics, the government's initial
monthly estimates of how much oil and fuel were in storage in the
U.S. also were incorrect, said Ronald O'Neill, chief of the
Energy Information Administration's Survey Management Team.
The latest revision says that the government overstated
stocks of crude oil, gasoline, diesel, heating oil and other
products by a monthly average of 2.9 million barrels through
September. In addition, imports of crude oil, gasoline and other
fuels were underestimated by 328,000 barrels a day.
''If what we thought was being met by domestic production
was actually being met by imported oil, then domestic production
was lower and we've found more of the missing barrels,'' said
David Knapp, editor of the International Energy Agency's Oil
Market Report, which tracks worldwide oil supply and demand.
Industry observers have said for months that the U.S. was
underreporting oil demand, Goldstein said.
''I'm delighted to see they are revising these statistics to
show higher demand and lower inventories,'' said Michael Mayer,
senior oil analyst with Schroder & Co. ''The surprise was that
inventories didn't go down as much as we expected,'' he said.
Goldstein said the agency isn't finished with revisions.
''We think there are lot more to come,'' he said.
Monthly Questionnaires
Early in 1998, it became apparent that much of the initial
data was incomplete but government officials say it took months
to get the right numbers.
''We questioned the quality of the data and we've been
digging and digging to find the solution,'' said the EIA's
O'Neill.
His team found out that mergers and alliances frequently
created errors because two separate companies with different
computer systems made mistakes trying to track a combined
inventory, or left no one accountable for getting data to the
government.
''Where they had one guy only doing government reporting, now
he's got six or seven jobs and he can only do this part time,''
O'Neill said. ''We think we have caught a couple of the biggest
problem children.''
The extent of the problem became obvious shortly after the
end of the year. Oil figures showed an improbably small 0.4
percent increase in oil demand at the same time the U.S. Gross
Domestic Product, which measures overall economic activity, rose
almost 10 times as much, or 3.9 percent. Meanwhile, retail
gasoline prices sank 16 percent lower than in 1997, a development
that normally boosts demand.
''To have believed the preliminary government data in 1998,
you would have had to believe there was a disconnect between
economic activity and the price of oil and its demand,''
Goldstein said.
--------------------------------------------------------------------------------
© Copyright 1999, Bloomberg L.P. All Rights Reserved.
|
