Oil prices and inventories
On June 25, the U.S. Energy Information Administration (or EIA) reported crude and refined product inventory data for the week ending June 20. Crude oil inventories increased by 1,742 thousand barrels, compared to analysts’ expectations of a 1,212-thousand-barrel decrease. Gasoline, a major product of refined crude oil, experienced an increase in inventories of 710 thousand barrels, compared to an estimated increase of 1,025 thousand barrels. Distillate, another major refined crude oil product, experienced an increase in inventories of 1,177 thousand barrels, compared to an estimated increase of 775 thousand barrels. Meanwhile, inventories at Cushing, Oklahoma, increased by 416 thousand barrels— the second consecutive weekly increase.
Last week, crude oil inventories beat analysts’ expectations with a positive surprise. Plus, we saw larger-than-expected builds in distillate as well as an increase of crude oil inventories at Cushing. Despite these trends, WTI crude prices traded higher to $107.25 per barrel on June 25, compared to $106.63 per barrel the day prior. This was due in part to news of the deteriorating Iraq crisis and a lower-than-estimated build in gasoline inventories. Oil prices were also positively affected by a possible lift of the ban on the U.S. crude oil exports. WTI is the major U.S. benchmark for crude oil prices.
WTI crude price movements and broader oil price movements affect crude oil producers because higher prices result in higher margins and earnings. Names with portfolios slanted towards oil—such as Oasis Petroleum (OAS), Hess Corporation (HES), Chevron (CVX), and ExxonMobil (XOM)—may see margins inflating in a higher oil price environment. Also, oil price movements affect energy sector ETFs such as the SPDR S&P Oil & Gas Exploration and Production ETF (XOP) and the iShares Dow Jones U.S. Energy Sector ETF (IYE).
Last week’s natural gas inventory figures caused prices to trade lower. We’ll discuss this news in detail in the next part of this series.