US crude oil inventories
In its weekly “Petroleum Status Report” released on Wednesday, September 2, the EIA (U.S. Energy Information Administration) reported a rise of 4.7 MMbbls (million barrels) in crude oil inventories for the week ending August 28. Analysts were expecting a rise of just 900,000 barrels.
What does this mean?
A more-than-expected inventory rise is usually bearish for crude oil prices. This is negative for major oil producers like Chevron (CVX), ConocoPhillips (COP), and Occidental Petroleum (OXY). All of these companies are part of the Vanguard Energy ETF (VDE). They account for ~19% of the fund. Also, lower prices may discourage these upstream companies from producing more crude oil. This would mean that lower volumes are transmitted by MLPs like Plains All American Pipeline Partners (PAA). This would reduce these MLPs’ revenue.
However, on September 2, while WTI (West Texas Intermediate) crude oil prices fell earlier in the day due to the bearish news, the daily settlement was ~2% higher than the previous day’s settlement at $46.25 per barrel. In this series we’ll discuss what could have caused the counterintuitive move.
Background on crude oil inventories
After touching a peak of 490.9 MMbbls in the week ending April 24, inventories started turning downward for the first time in four months in the week ending May 1, as you can see in the above graph.
Until the week ending June 26, inventories consistently fell by a cumulative ~28 MMbbls. This sparked speculation that the supply glut was easing. Since then, inventories have fluctuated. Currently, the inventories are at ~455.4 MMbbls.
In the next part of this series, we’ll look at what might have caused the more-than-expected rise 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 global economies and industries. Supply and demand trends determine crude oil price trends.