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The 1999 Saga Of EIA's "Missing Oil Barrels": EIA's Historical Bias For "Oil Supply Glut" Revisited

In a recent blog entry, I said that I bumped into an old friend -- a very experienced global head of crude trading -- who said, 'it's 1999 all over again'.

He was talking about the trading conditions and the market volatility (and price prospects) we both saw or hoped for during the 1999 oil price low. I was intrigued by this encounter, which encouraged me to look at old stuff I had squirreled away, pertaining to market conditions at that time. I found this gem from Matthew R. Simmons, president of Simmons and Company, Int'l at that time, published in June of 1999.

This article dissected the "mystery" of EIA's "missing barrels" -- the discrepancy pertaining to the imbalance between supply and demand for oil at that period.

Simmons' work was very thorough. He dissected the timeline of EIA faulty (even sloppy) reporting and analysis, which led to the illusion of oil "vast oversupply". Even worse, he said, EIA "arrogance" in pretending that their numbers are perfect and their refusal to consider that their numbers might be wrong, became a hindrance when OPEC finally announced a cut in oil supplies in March that year. "These presumed cuts became 'stealth cuts' because none of these producers were pumping as much oil out of the ground as the EIA analysts claim" -- in Simmons' words.

Simmons' work is relevant today because EIA data is still beset with integrity issues and the agency is again being accused of overstating the oversupply conditions in the oil market. I personally believe that the agency had indeed overstated the supply levels, but i also believe that the fault lies with their methodology, rather than an overarching arrogance to acknowledge their mistakes. They simply do not know enough to be more precise.

So it is a trip back in time, reliving the disappointments in calling the market low too soon, and the exhilaration of redemption when the oil market finally turned and the oil price soared like a rocket. And yes, the over-all sentiment at that time was bad, but today's gloomy forecasts are worse.

Maybe it will not be different this time around.

You may read or download the Simmons article here.