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Crude oil inventories affect prices and profits for producers

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EIA inventory data

The US 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.

US 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. Supply comes from 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 250,000 barrel in crude inventories last week. We’ll discuss actual changes in inventories later in this series.

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The effect of price and profits

The difference between actual and expected changes affects crude prices. We’ll cover recent crude price movements in a later part of this series. Crude oil prices directly affect earnings for major oil producers like Whiting Petroleum (WLL), Chevron Corp. (CVX), ExxonMobil (XOM), and Marathon Oil (MRO). These companies are all major components of energy ETFs like the Energy Select Sector SPDR (XLE).

Cushing inventories

Another important figure the EIA reports is the level of crude oil inventories at Cushing, Oklahoma, which is a major inland oil hub in the US. It’s the pricing point for the North American benchmark, WTI crude.

Inventory levels at Cushing reflect the pace of the increasing US oil supply is moving from major inland production areas like the Bakken in North Dakota and the Permian in west Texas to the major refining hub on the Gulf Coast. A buildup of inventories at Cushing can pressure WTI crude prices to fall, and vice versa.

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

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