Crude inventories decline
In its weekly Petroleum Status Report released on Wednesday, the EIA (US Energy Information Administration) announced a decrease of 3.9 million barrels in crude inventories for the week ended May 1. Analysts were expecting an increase of 1.5 million barrels. This was the first time US oil stocks dropped in the past four months, signaling an ease in the supply glut. Supplies had touched 490.9 million barrels in the April 24 week, the highest in 80 years.
When inventories decrease, it’s bullish for crude prices. This is positive for major oil producers such as Chevron (CVX), Occidental Petroleum (OXY), Murphy Oil (MUR), and Anadarko Petroleum (APC). All these companies are components of the iShares Global Energy ETF (IXC) and make up ~12% of the fund.
Supplies decreased last week
Crude oil production decreased by 4,000 barrels per day to 9.36 million barrels per day. Production had touched a peak of 9.42 million barrels per day in the week of March 20, the highest in EIA data going back to 1983.
Imports saw a decrease of 905,000 barrels per day to 6.54 million barrels per day, the lowest in almost a year. This, along with increased demand, as we’ll discuss later in this series, was the primary factor in inventory decline.
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 MMbpd) in March. It averaged 9.4 MMbpd in February. The next STEO is due on May 12.
The STEO forecasts production will decrease from June through September before it begins to increase again. The EIA also estimated that crude output will average ~9.2 MMbpd in 2015 and ~9.3 MMbpd in 2016. Output averaged ~8.67 MMbpd 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 several 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.
In the next part of this series, we’ll take a look at the latest week’s movement in Cushing inventories.