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US crude oil inventories are high for this time of year

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EIA inventory data

On November 26, the US Energy Information Administration (or EIA) released inventory data for the week ended November 21. Inventories increased by 1.95 million barrels—much more than the 250,000 barrel increase that analysts had expected.

US crude oil stocks

Total US commercial crude inventories now stand at 383 MMbbls (million barrels). As the chart above shows, inventories remain at the higher end of the five-year range for this time of year.

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Supply

Crude inventories showed strong gains throughout the refinery maintenance season, which ended on October 31. Strong US production levels also ensured robust supply levels.

Last week, US crude production increased by 73,000 bpd (or barrels per day) from the week earlier, to just over 9 million barrels per day. These levels are ~1 MMbbls per day higher than a year ago. Plus, these production levels are also the highest in about 30 years.

In its November “Short-Term Energy Outlook” (or STEO), the EIA said that crude oil output will hit 9.42 MMbbls per day in 2015. This forecast is less than the 9.5 MMbbls per day that the organization had forecast in its October STEO—but still it’s the highest since 1972.

Net imports declined by 165,000 bpd to approximately 7.5 MMbpd (million barrels per day). Saudi Arabia and Canada were the major reasons for this drop. Imports from Saudi Arabia declined by 521,000 bpd, while imports from Canada declined by 41,000 bpd.

Last week’s crude build came despite the drop in imports, which again draws attention to robust production levels.

Refinery demand

The main source of crude demand is from refineries. Refinery input levels affect inventory draws and builds. Increased crude input demand is bullish for oil prices. We’ll discuss this important side of the demand and supply equation in the next part of this series.

Meanwhile, it’s important for you to understand that changes in inventories drive WTI prices, which in turn affect the profits of oil-producing companies like Pioneer Resources (PXD), Anadarko Petroleum (APC), Apache Corp. (APA), and ConocoPhillips (COP).

Many oil-producing companies are components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), so XOP’s fortunes will also directly link to movements in crude oil prices.

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