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Why did last week’s crude oil inventory build beat expectations?

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Nov. 20 2020, Updated 3:59 p.m. ET

EIA inventory data

On October 8, the U.S. Energy Information Administration (or EIA) released inventory data for the week ended October 3. Crude inventories increased by 5 MMbbls (millions of barrels). This was a significant build versus analysts’ expectations of a 2 MMbbls increase.

Total U.S. commercial crude inventory now stands at 361.7 million barrels. It remains at the higher end of the five-year range for this time of year.

A crude inventory build seems to be in line with expectations for this time of year, given the start of seasonal maintenance by refineries. But the significant rise in U.S. inventories last week was also thanks to strong imports.

Total U.S. imports rose to 9.2 million bpd (barrels per day)—an increase of 647,000 bpd. The uptick was led by Canadian imports, which increased to 3.25 million bpd by 494,000 bpd.

The majority of Canadian imports head to the Midwest. That’s why the inventory build in crude stocks was the largest in the U.S. Midwest, where inventories rose by 3.11 million barrels to 91.6 million barrels.

Inventories also increased as a result of lower crude inputs by refineries. The following part of this series discusses last week’s refinery activity in greater detail.

Refinery demand affects crude inventories

Crude draws and gains are affected by refinery input levels. Refineries, this past summer, were running at record-high levels due to a surge in U.S. oil production.

Decreased refinery activity leads to an increase in crude inventories. That’s what happened last week. This trend could pressure WTI crude prices to move lower. We’ll covering the implied effect on crude prices in a later part of this series.

Key stocks and ETFs

When WTI prices are pressured, it’s negative for oil producing companies such as Continental Resources (CLR), Whiting Petroleum (WLL), Occidental Petroleum (OXY), and Pioneer Resources (PXD). All these companies are components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Check out Market Realist’s Energy & Power page for more articles on the energy industry.

The following part of this series will cover refinery activity last week.

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