Oil prices and inventories
On June 4, the U.S. Energy Information Administration (or EIA) reported crude and refined product inventory data for the week ending May 30. Crude oil inventories decreased by 3,431 thousand barrels, compared to analysts’ expectation of a 160 thousand barrel decrease. Gasoline, a major product of refined crude, experienced an increase in inventories of 210 thousand barrels, compared to an estimated increase of 140 thousand barrels. Distillate, another major refined crude oil product, experienced an increase in inventories of 2,012 thousand barrels, compared to an estimated increase of 640 thousand barrels. Meanwhile, inventories at Cushing, Oklahoma, dropped by 321 thousand barrels—the eighth consecutive weekly decrease.
Altogether, the larger than expected decrease in crude oil inventories, combined with larger than expected builds in gasoline and distillate caused crude prices to trade roughly flat on the day. West Texas Intermediate (or WTI) crude prices closed at $102.64 per barrel, compared to $102.66 per barrel the day prior. 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 squeezed in a lower 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 up. We’ll discuss this in detail in the next section of this series.