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Could US Crude Oil Fall below the $50 Mark?

PART:
1 2 3 4 5
Part 3
Could US Crude Oil Fall below the $50 Mark? PART 3 OF 5

Inventories Spread: Could Oil Prices Flip?

Inventory data

US commercial crude oil stockpiles fell by 1.8 MMbbls (million barrels) to ~471.0 MMbbls for the week ended September 22, 2017. The rise in the US refinery utilization rate and rising US crude oil exports could be behind this trend. We’ll discuss US crude oil exports in Part 5 of this series.

Inventories Spread: Could Oil Prices Flip?

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Inventories spread

The difference between US crude oil inventories and their five-year average is known as the inventories spread. If the inventories spread rises, oil (UCO)(BNO)(DBO) prices could fall, and vice versa.

Based on the latest data, the inventories spread contracted by 40 basis points on a week-over-week basis. Since the EIA (Energy Information Administration) released inventory data on September 27, 2017, US crude oil futures fell 3.3%.

The rise of 1.1 MMbbls in gasoline inventories in the week ended September 22, 2017, and news of the rise in the OPEC oil output could be pulling oil prices lower.

Market estimates

In the week ended September 29, 2017, US commercial crude oil stockpiles could fall by 0.5 MMbbls. The API (American Petroleum Institute) reported a fall of 4.1 MMbbls in US crude oil inventories on October 3, 2017. The EIA expects to release inventory data on October 4, 2017.

Any decline in inventories could decrease the inventories spread. Even an increase up to ~521,000 barrels would not increase the inventories spread. A continued trend of falling inventories spreads would be bullish for oil prices.

The trend in the inventories spread could also be important for equity indexes such as the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA).

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