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Crude inventories relentless as EIA reports another record build

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Crude inventories post a huge inventory again

On March 4, the EIA (U.S. Energy Information Administration) reported that crude inventories rose significantly yet again, increasing 10.3 million barrels, or MMbbls, in the week ending February 27.

This was more than double the estimated 3.95 MMbbls increase and the largest weekly gain since March 2001.

The total US commercial crude inventory now stand at 444.4 MMbbls, setting another all-time high record. Inventories surpassed their previous high record of ~434 MMbbls set last week.

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Changes in inventories drive WTI (West Texas Intermediate) prices. This affects the profitability for companies that produce oil—like Chevron (CVX), ConocoPhillips (COP), and Murphy Oil (MUR). These companies make up ~17.5 % of the Energy Select Sector SPDR ETF (XLE) and ~3.4% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Supply-related factors caused crude inventories to build

For the past few weeks, inventory movement has been driven by strong crude oil production. Last week, output touched ~9.3 million barrels per day (or MMbpd), increasing 39,000 bpd (barrels per day) over prior week’s levels. At these levels, output levels are at their highest level in weekly data going back to 1983.

An increase in imports has also caused the surge in inventories over the past few weeks. Last week, imports increased by 89,000 bpd to ~7.36 MMbbls/d.

Supply forecasts for 2015

According to the EIA’s February STEO (“Short-Term Energy Outlook”), total US crude oil production averaged 9.2 million barrels per day in January. The EIA forecasts that output will increase further to average ~9.3 MMbbls/d in 2015 and increase further in 2016 to average ~9.5 MMbbls/d. For context, consider that output averaged ~8.67 MMbbls/d in 2014.

A strong crude supply level is bearish for crude prices—unless it meets with parallel demand. In the next part of this series, we’ll analyze wether demand-related factors balanced supply levels.

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