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Why the EIA crude inventory report is crucial to energy investors



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.

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 ~3.85 million barrels 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 profitability

The difference between actual and expected changes in inventories affect 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 Pioneer Resources (PXD), Anadarko Petroleum (APC), Chevron Corp (CVX), and ExxonMobil (XOM). 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 at which the increasing US oil supply is moving from major inland production areas such as the Bakken in North Dakota and the Permian in west Texas to the major refining hub situated on the Gulf Coast.

A buildup of inventories at Cushing can pressure the price of WTI crude downwards, and vice versa.

The following parts of this series discuss the latest crude inventory data in detail.


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