US Crude oil inventories
In its weekly “Petroleum Status Report” released on Wednesday, August 26, the EIA (U.S. Energy Information Administration) reported a decrease of 5.5 million barrels (or MMbbls) in crude oil inventories for the week ended August 21. Analysts were expecting an increase of 1.45 MMbbls.
What this means
An unexpected inventory decrease is usually bullish for crude oil prices. This is positive for major oil producers such as Chevron Corporation (CVX), ConocoPhillips (COP), and Occidental Petroleum (OXY). All these companies are components of the Vanguard Energy ETF (VDE). They make up ~19% of the fund. Plus, higher prices may encourage these upstream companies to produce more crude oil, which would mean higher volumes transmitted by MLPs like Plains All American Pipeline Partners (PAA). This would boost these MLPs’ revenues.
However, on August 26, crude oil prices fell despite the bullish news. WTI ended at $38.60 per barrel, 1.8% lower than the previous day’s close. Follow us through this series to find out why this was the case.
Background on crude oil inventories
After touching a peak of 490.9 million barrels in the week ended April 24, inventories began turning downward for the first time in four months in the week ended May 1, as you can see in the graph above.
Until the week ended June 26, inventories consistently decreased by a cumulative ~28 MMbbls, which sparked speculation that the supply glut was easing. Since then, however, inventories have seesawed. They are currently at ~450.8 million barrels.
In the next part of this series, we’ll be looking at what might have caused the unexpected decline in crude oil inventories.
Importance of crude oil and inventories
Crude oil is one of the most important energy sources for the world. Its refined products have several applications, ranging from powering cars to building roads. Crude oil prices are important not only for individuals but also for the world’s economies and industries. Supply and demand trends determine crude oil price trends.