The U.S. Energy Information Administration’s weekly petroleum supply report released Wednesday included an upward “adjustment” to last week’s U.S. oil supplies — one of the larger ones reported in the government data.
The change can be seen simply as a “balancing item,” as the EIA describes it, but can also lead to volatility in the oil market as traders digest it, analysts said.
Line number 13 of the government agency’s weekly U.S. petroleum supply table shows an upward adjustment of 1.967 million barrels per day in crude supplies. That leads to an addition of 13.8 million barrels of commercial crude-oil supplies last week.
The change “suggests that the EIA underestimated not only domestic crude production but also likely underestimated net imports of crude and overestimated refinery runs,” said Troy Vincent, senior market analyst at DTN.
The “adjustment” line itself isn’t unusual. It’s included in the EIA’s U.S. petroleum balance sheet tables each week.
The size of the latest weekly rise in inventories is notable, though the EIA pointed out to MarketWatch that the size of the latest adjustment was “surpassed twice in 2022.” In a footnote on the report, the EIA said the adjustment, formerly known as “unaccounted-for crude oil,” is a “balancing item.”
When asked for comment on the adjustment, the EIA pointed to a Nov. 30, 2022 tweet thread from Joseph DeCarolis, EIA administrator, which said the adjustment at that time represented “the difference between supply and disposition.”
Ideally, “the adjustment would be zero since the crude oil supplied has to go somewhere,” he said, but there is a “degree of uncertainty associated with each term, stemming from imprecise statistical sampling and modeling inaccuracies.”
Phil Flynn, senior market analyst at The Price Futures Group, said he believes the EIA adjustment for the week ended Feb. 10 is among the biggest on record.
One would assume by the size of the increase in weekly supplies that “most of that adjustment was adding barrels to the market that were previously uncounted,” he told MarketWatch. “That might explain why we saw drawdowns when we were releasing significant barrels from the Strategic Petroleum Reserve.”
At the same time, “it really raises a question whether the [EIA] models can be trusted if they have to make bigger and bigger adjustments each week to balance the books,” said Flynn. “It isn’t very helpful for the direction of the market.”
On Wednesday, oil prices initially saw a steep decline in reaction to the 16.3 million-barrel increase in U.S. crude supplies reported by the EIA for the week ended Feb. 10.
Oil prices spent most of Wednesday’s session trading lower, but did briefly see a modest move higher before closing lower — above the session’s worst levels.
U.S. benchmark March West Texas Intermediate crude
settled at $78.59 a barrel on the New York Mercantile Exchange on Wednesday, down 47 cents, or 0.6% for the session, after trading as low as $77.25.