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Why energy investors closely monitor EIA’s crude oil inventories

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EIA inventory data

The EIA (U.S. Energy Information Administration) usually reports weekly figures on crude oil inventories every Wednesday. The report also provides data on distillate and gasoline inventories. Distillates and gasoline are refined products of crude oil.

Crude oil inventory levels change based on demand-and-supply trends. Demand is primarily from refineries that process the crude into refined products such as 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 that week.

Analysts expected an increase of ~3 million barrels (or MMbbls) in crude oil inventories last week. We’ll look at the actual changes in these inventories later in this series.

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Price and profitability

The difference between actual and expected changes in inventories impact crude prices. We’ll cover recent crude price movements in a later part of this series.

Crude oil prices directly impact major oil producers’ earnings. They affect companies such as Continental Resources (CLR), Occidental Petroleum (OXY), Hess Corporation (HES), and ConocoPhillips (COP). Most of these companies are major parts of the Energy Select Sector SPDR (XLE) and make up ~9% of the ETF.

Cushing inventories

Another important figure the EIA reports is the level of crude oil inventories at Cushing, Oklahoma. Cushing is a major inland US oil hub. It’s also the pricing point for the North American benchmark, or the WTI (West Texas Intermediate) 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 major refining hubs on the Gulf Coast.

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

In the next part of this series, we’ll take a look at the latest crude inventory data in more detail.

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