Estimating errors in U.S. oil demand

LONDON (Reuters) – The market is transfixed by the weekly inventory and consumption estimates for crude oil and products published by the U.S. Energy Information Administration (EIA). But the backward-looking nature of parts of the reporting system makes it liable to miss turning points. Consumption and exports numbers are especially vulnerable to errors.

For the last three years, preliminary estimates for U.S. petroleum consumption (more formally called “product supplied to the domestic market”) published in the EIA’s Weekly Petroleum Status Report (WPSR) have been revised down when more comprehensive data becomes available in the Petroleum Supply Monthly (PSM) published six weeks later.

The core of the problem is the statistical system’s struggle to account for soaring exports of refined products, especially distillates to Europe. Because the agency is systematically under-estimating exports, it is over-estimating consumption, and being forced to trim the figures when more data becomes available.

The EIA’s widely envied reporting system is a legacy of the Cold War, when concerns about military preparedness made the federal government anxious to know how much gasoline and diesel the domestic refining system could produce in an emergency, and what stocks of both refined products and crude oil were on hand.

Reuters