In its weekly Petroleum Status Report released on Wednesday, the EIA (Energy Information Administration) announced an increase of 5.3 million barrels in crude inventories for the week ended April 17.
This took US commercial crude oil inventories to 489 million barrels—the highest level in almost 80 years. Analysts were expecting an increase of 3.2 million barrels.
When inventories increase more than expected, it’s bearish for crude prices. This is negative for major oil producers such as Hess Corporation (HES), Anadarko Petroleum (APC), Chevron Corporation (CVX), and ExxonMobil (XOM). All these companies are components of the iShares S&P Global Energy ETF (IXC) and make up ~24% of the fund.
Supplies decreased last week
Continuing the trend from last week, crude oil production decreased by 18,000 barrels per day to 9.36 million barrels per day. Production has moderated from its week ending March 20 peak of 9.42 million barrels per day—the highest in EIA data going back to 1983.
However, imports saw an increase of 617,000 barrels per day to 7.76 million barrels per day. This is the likely cause of the crude inventory build, offsetting the impact of a decline in production.
Supply forecasts for 2015
According to the EIA’s April STEO (Short-Term Energy Outlook) released on April 7, total US crude oil production averaged 9.3 million barrels per day (or MMbbl/d) in March. It averaged 9.4 MMbbl/d in February.
The EIA forecasts production to decrease from June through September before it begins to increase again. The EIA also estimated that crude output will average ~9.2 MMbbl/d in 2015 and ~9.3 MMbbl/d in 2016. Output averaged ~8.67 MMbbl/d in 2014.
Importance of crude oil and inventories
Crude oil is one of the most important sources of energy for the world. Its refined products have numerous applications, ranging from powering cars to building roads. The price of crude oil is important not only for individuals, but also for the world’s economies and industries.
Supply-and-demand trends determine crude price trends. These trends can easily be gauged from trends in crude inventory levels.