A good reminder from : fueling oil bearishness is surprisingly strong US supply growth. We had estimated '23 growth of 0.5MM Bbl/d vs. 1MM Bbl/d as reported in the EIA 914 data. However, the EIA changed their definition of "production" (for June '23 and onwards) to include barrels that were previously being accounted for in the "Adjustment Factor." By not also adjusting the months prior to June '23, the baseline from which we are calculating YOY growth is artificially low = growth rates are being exaggerated. While US supply growth is exceeding prior expectations, it is only doing so by <0.3MM Bbl/d. Further, we believe much of this beat is coming from private operators who ramped up production ahead of selling themselves to make accretion math look more compelling for the public buyers, and this is largely unrepeatable in 2024.
But more importantly, the misleading thing about the chart is the timing of the drop in Saudi production and the increase in US oil production. For starters, EIA materially
changed the way it defined US oil production in June 2023 with the inclusion of "transfers to crude oil supply". We have discussed this far too many times, but it
bears repeating. The issue with this inclusion is that EIA did not retroactively change the historical production figures. As a result, all US oil production figures before June 2023 were likely understated. This is why we wrote at the time (June 2023) that ElA's methodology change is going to create more confusion than clarity. People who are not attuned to the details of ElA reports will find a completely different narrative
than the guys who are specialists in this.
Again, we are going to use historical examples to explain this. From Oct to Dec 2022, ElA's monthly reported US oil production figure averaged
12.315 million b/d. Including the adjustment, the average was 13.127 million b/d.
Positive adjustment averaged ~812k b/d. We know based on ElA's June 2023 report that transfers to crude oil supply was ~650k b/d. Assuming a total lower base in production, we can guestimate that
transfers to crude oil supply in Q4 2023 averaged between ~550k b/d to ~600k b/d. Using that figure, we believe US oil production was closer to ~12.5 to 12.55 million
b/d in Q4 2022. At today's production volume of ^13.2 million b/d, this represents a growth of ~650k
b/d to ~700k b/d.
Source: HFI Research, December 2023
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