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The EIA Reports Another Significant Crude Oil Inventory Build

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Inventories surpass expectations yet again

On March 26, the EIA (US Energy Information Administration) reported that crude oil inventories rose significantly yet again, increasing by 8.2 million barrels, or MMbbls, in the week ended March 20.

The build was almost double analysts’ expectations of a 4.75 MMbbl increase.

The total US commercial crude oil inventory now stands at ~466.7 MMbbls, setting another all-time-high record. Inventories surpassed their previous high of ~459 MMbbls that had been set last week.

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Changes in inventories drive WTI (West Texas Intermediate) prices. This affects the profitability of companies that produce oil—like Hess (HES), ConocoPhillips (COP), and Murphy Oil (MUR). These companies make up 14% of the Energy Select Sector SPDR ETF (XLE) and ~4.2 % of the iShares Global Energy ETF (IXC).

Supply-related factors affect crude oil inventories

For the past few weeks, inventory movement has been driven by strong crude oil production. Last week, however, production was almost flat, after touching ~9.4 MMbbl/d (million barrels per day) the week before. Production increased by 3,000 bpd (barrels per day), to touch 9.42 MMbbl/d in the week ended March 20.

At these levels, output is at its highest level among the weekly data going back to 1983.

Imports decreased by 104,000 bpd to ~7.4 MMbbls/d last week. This fall will have helped curb the inventory build.

Supply forecasts for 2015

According to the EIA’s March STEO (“Short-Term Energy Outlook”), total US crude oil production averaged 9.4 million barrels per day (MMbbl/d) in February. The EIA forecasts that output will average ~9.3 MMbbl/d in 2015 and increase further in 2016 to average ~9.5 MMbbls/d. These levels should be close to the record-high US production of 9.6 MMbbl/d set in 1970. Output averaged ~8.67 MMbbl/d in 2014.

Strong crude oil supplies are bearish for crude oil prices unless they meet with parallel demand. In the next part of this series, we’ll analyze whether demand-related factors balanced supplies.

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