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Crude Oil Inventories Drop Again: Good News for WTI

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Dec. 4 2020, Updated 10:52 a.m. ET

Crude oil inventories continue downtrend

In its weekly Petroleum Status Report released on Thursday, the EIA (U.S. Energy Information Administration) announced a decrease of 2.8 million barrels (MMbbls) in crude oil inventories for the week ending May 22.

Analysts were expecting a decrease of 2 MMbbls.

When inventories decrease more than expected, it’s bullish for crude oil prices. This is positive for major oil producers like Hess (HES), Oasis Petroleum (OAS), Murphy Oil (MUR), and Anadarko Petroleum (APC). All of these companies are part of the iShares US Energy ETF (IYE). They account for 4% of IYE.

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Inventories touched a peak of 490.9 MMbbls in the April 24 week—the highest in 80 years. Oil prices and energy companies had been battered by surging supplies. As you can see in the above graph, in the week ending May 1, inventories started turning downward for the first time in the past four months. This signaled an easing of the supply glut. Last week, inventories stood at 479.4 MMbbls.

It remains to be seen if the downturn in inventories will go deep enough to sustain confidence in the energy industry. As a result, it’s important to watch production. We’ll discuss production in the next part of this series.

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 oil price trends. These trends can easily be gauged from trends in crude oil inventory levels.

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