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Why the EIA crude oil inventory report is key to energy investors

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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 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 than supplies for the week. They 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 expected an increase of ~4 million barrels, or MMbbls, in crude inventories last week. We’ll discuss the actual changes in inventories later in this series.

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Price and profitability

The difference between actual and expected changes in inventories impacts crude prices. We’ll cover recent crude price movements later in this series. Crude oil prices directly affect major oil producers’ earnings—like Pioneer Resources (PXD), Anadarko Petroleum (APC), Apache Corp. (APA), and ExxonMobil (XOM). Most of these companies are major parts of the Energy Select Sector SPDR (XLE). They account for ~24% of the XLE.

Cushing inventories

Another important figure that the EIA reports is the level of crude oil inventories at Cushing, Oklahoma. It’s a major inland oil hub in the US. It’s the pricing point for the North American “benchmark”—WTI (West Texas Intermediate) crude.

Inventory levels at Cushing reflect the pace that the increasing US oil supply is moving from major inland production areas—like the Bakken in North Dakota and the Permian in west Texas—to the major refining hubs situated on the Gulf Coast.

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

In the next part of this series, we’ll discuss the latest crude inventory data in more detail.

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