Crude Oil Inventories Rise: Can Gasoline Inventories Save WTI?
Crude oil inventories
In its weekly “Petroleum Status Report” released on Wednesday, July 1, the EIA (U.S. Energy Information Administration) announced an increase of 2.4 million barrels (or MMbbls) in crude oil inventories for the week ended June 26.
Analysts were expecting a decrease of 2.5 MMbbls.
What that means
When inventories rise unexpectedly, they’re bearish for crude oil prices. This is negative for major oil producers such as Apache Corporation (APA), Cimarex Energy (XEC), Murphy Oil (MUR), and Occidental Petroleum (OXY). All these companies are components of the iShares U.S. Energy ETF (IYE) and they make up 6% of the fund.
Plus, lower prices demotivate producers from pumping crude oil, which negatively affects the volumes transmitted by midstream MLP (master limited partnership) companies, such as MarkWest Energy Partners (MWE). So lower prices are negative for this sector as well.
Background on crude oil inventories
Crude oil inventories touched a peak of 490.9 million barrels in the week of April 24. This was the highest inventory reading in 80 years. Crude oil prices and energy companies had been battered by surging supplies. In the week ended May 1, inventories began turning downward for the first time in four months, as you can see in the graph above.
Since inventories started declining in May, they decreased ~28 MMbbls, sparking speculation that the trend reflected the supply glut easing.
Last week, however, inventories reversed. They rose for the first time in almost two months. For the week ended June 26, inventories stood at ~465.4 million barrels.
It remains to be seen if the changes in the course of crude oil inventories will continue in the following weeks, or if this was just a temporary swing. Production is one of the key things to watch here. We’ll discuss production in the next part of this series.
Importance of crude oil and inventories
Crude oil is one of the most important sources of the world’s energy. Its refined products have several applications, ranging from powering cars to building roads. Crude oil prices are important not only for individuals but also for the world’s economies and industries. Supply-and-demand trends determine crude oil price trends. You can easily gauge these trends from crude oil inventory level trends.
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