Why energy investors must closely track crude oil inventories
Oil and refined product inventory data can move crude oil prices
Every week, the U.S. Energy Information Administration (or EIA) reports figures on crude inventories, or the amount of crude oil stored in facilities across the United States. The EIA also provides data on inventories of distillate and gasoline, which are refined products of crude oil.
Markets monitor these figures because inventory data can indicate supply and demand trends. If the increase in crude inventories is more than expected, it implies either greater supply or weaker demand and is bearish for crude oil prices. If the increase in crude inventories is less than expected, it implies either weaker supply or greater demand and is bullish for crude oil prices.
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Crude oil prices directly affect earnings for major oil producers like Chevron (CVX), ExxonMobil (XOM), and Hess Corporation (HES). These companies are all major components of energy ETFs like the Energy Select Sector SPDR (XLE) and the Vanguard Energy ETF (VDE).
Another important figure the EIA reports is the level of crude oil inventories at Cushing, Oklahoma—a major inland oil hub in the U.S. and the pricing point for the North American “benchmark,” WTI crude.
Inventories from Cushing show you how effectively growing U.S. oil production is moving from major inland production areas like the Bakken in North Dakota and the Permian in West Texas to end refining markets.
A buildup of inventories at Cushing may show you that oil supplies are growing faster than takeaway infrastructure to end refining markets can keep up. Many of these end markets are located on the Gulf Coast. A buildup of inventories at Cushing can push WTI crude prices down.
The latest figures
Last week, crude oil prices decreased despite falling crude inventories. Find out more in the next part of this series.