It was brought to our attention by our friend Myra Saefong at MarketWatch.com that the EIA noted the production number in Wednesday’s weekly inventory report incorporated “re-benchmarking,” and apparently skewed the figures in the release. Here are a few thoughts on the subject.
An imbalance showed up between the monthly and weekly production data, and because of that, the EIA had to make an adjustment to the data from last week. But in an absolute sense, the revision showed an increase in production, suggesting that previous weekly reports were under reporting the true data.
So, when you factor in the “revised data” to the rolling four-week moving average it shows a reversal to US production increasing (average of +18.75 over last four weeks) from decreasing, if we are understanding the EIA’s lingo properly. If that is the case, the data is just as bearish from a fundamental outlook perspective as if it were a “true number” in Wednesday’s report.
Right now, however, the US data is on the back burner. Oil futures continue to charge ahead to fresh highs, not because of any materially bullish fundamental news, but rather a short-sellers strike as traders focus on the potential freeze that OPEC and Non-OPEC producers will discuss at a meeting next month.
Bottom line, no one wants to get caught short into a meeting where OPEC could act to support prices, even if the chances of them doing anything remain very slim. If they were to disappoint this time though, the reaction could potentially be much more bearish than back in April, because the underlying trend in US production is now increasing (bearish) while in Q2 it was decreasing (bullish).