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An analysis of the EIA’s latest crude oil inventory data

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EIA inventory data

On December 3, the US Energy Information Administration (or EIA) released inventory data for the week ending November 28.

Inventories decreased by 3.7 million barrels (or MMbbls). Analysts expected an increase of 1.75 MMbbls.

Total US commercial crude inventory now stands at 379.3 MMbbls. As the above chart shows, it remains 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. The season ended on October 31. Strong US production levels also ensured strong supply levels.

Last week, US crude production marginally increased by 6,000 barrels per day (or bpd) from the previous week. The production was just over nine million barrels per day (or MMbbls/d). These levels are approximately one MMbbls/d higher—compared to last year.

Although this week’s increase in production isn’t as significant as the previous week, production levels are still at their highest point in ~30 years.

In its November Short-Term Energy Outlook (or STEO), the EIA said that output will hit 9.42 MMbbls/d in 2015. This is less than the 9.5 MMbbls/d it had forecast in its October STEO. However, it’s still the highest since 1972.

Another factor that lowered stocks was the reduction in imports. Total US imports fell 170,000 bpd to 7.3 MMbbls/d.

Refinery demand

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

Meanwhile, it’s important to understand that changes in inventories drive West Texas Intermediate (or WTI) prices. WTI prices impact oil companies’ profitability—like Continental Resources (CLR), Whiting Petroleum (WLL), Hess Corp. (HES), and ConocoPhillips (COP).

Many companies that produce oil are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). XOP’s fortunes will also be directly linked to movements in crude oil prices.

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