uploads///crude inventories

Why you should closely monitor crude oil inventory numbers


Oct. 10 2014, Published 11:51 a.m. ET

EIA inventory data

The U.S Energy Information Administration (or EIA) reports weekly figures on crude oil inventories every Wednesday. The report also provides data on inventories of distillates and gasoline, which are refined products of crude oil.

crude inventories

Crude oil inventory levels change based on demand and supply trends. Demand is primarily from refineries that process this crude into refined products like gasoline and heating oil. Supplies come from sources like domestic production and imports from other countries.

Inventories increase when demand is lower and decrease when demand is higher than supplies for the week. Every week, analysts anticipate an increase or decrease in crude inventories based on demand and supply expectations in that week.

Analysts had expected an increase of 2 million barrels (MMbbls) in crude inventories last week. This series covers the actual changes in inventories.

Article continues below advertisement

Usually, if the actual decline is more than analysts expected, it implies that demand was more than anticipated or supplies were less than anticipated. However, if the decline is less than what analysts expected, it implies that demand was less than anticipated or supplies were more than anticipated.

The difference between actual and expected declines affects crude prices. We’ll cover crude price movements last week in a later part of this series.

Key stocks and ETFs

Crude oil prices directly affect earnings for major oil producers like ConocoPhillips (COP), Anadarko Petroleum (APC), Marathon Oil (MRO), and Apache Corp. (APA). These companies are all major components of energy ETFs like the Energy Select Sector SPDR (XLE).

Cushing inventories

Another important figure reported by the EIA 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.

Inventory levels at Cushing reflect the pace at which the increasing U.S. oil supply is moving from major inland production areas such as the Bakken in North Dakota and the Permian in west Texas to end refining markets.

A buildup of inventories at Cushing may indicate that the oil supply growth is outpacing the takeaway infrastructure growth. So a buildup of inventories at Cushing can pressure the price of WTI crude downwards, and vice versa.

The following parts of this series discuss changes in inventories and oil prices last week.


More From Market Realist