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The US Crude Oil Rise: Short Covering or Bulls Back in Action?

PART:
1 2 3 4
Part 3
The US Crude Oil Rise: Short Covering or Bulls Back in Action? PART 3 OF 4

Inventories: Why Crude Oil Prices Could Edge Higher

Inventory data

In the week ended August 25, US commercial crude oil inventories fell by 5.4 million barrels (MMbbls) ­to 457.8 MMbbls, according to EIA (US Energy Information Administration) data released on August 30. The fall was about three times the market’s expected fall. At the same time last year, US crude oil inventories fell by ~2.3 MMbbls.

Inventories: Why Crude Oil Prices Could Edge Higher

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Inventory spread

US crude oil commercial inventories above their five-year average could be a concern for crude oil (UCO)(BNO)(OIIL) prices. An expansion in the difference (called the “inventories spread”) could pressure oil prices. On the other hand, a contraction in the inventories spread could boost oil prices.

According to the latest data, the inventory spread fell by 2.2 percentage points on a week-over-week basis. Since the release of inventory data on August 30, US crude oil futures have risen 5.9%.

So the inventories spread could also be crucial for broader equity indexes such as the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA). These equity indexes could take cues from crude oil prices.

In the next part of this series, we’ll discuss the US crude oil’s futures spread.

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