US crude oil inventories
In its weekly Petroleum Status Report released on Wednesday, September 30, the EIA (US Energy Information Administration) reported an increase of 4 MMbbls (million barrels) in crude oil inventories for the week ending September 25. Analysts were expecting inventories to remain unchanged.
What does this mean?
When inventories or stocks rise more than expected, it is usually bearish for crude oil prices (USO). This is negative for major oil producers such as Chevron (CVX), ConocoPhillips (COP), and Anadarko Petroleum (APC). All of these companies are part of the Vanguard Energy ETF (VDE). Together, they account for ~17.33% of the fund.
Lower prices may discourage these upstream companies from producing more crude oil. This would mean lower volumes and revenues for MLPs such as Plains All American Pipeline (PAA).
After the release of the bearish data on September 30, WTI (West Texas Intermediate) crude oil prices fell by ~0.3%, which was marginal considering that inventories rose significantly more than expected. Prices settled at $45.09 per barrel. We will discuss why this happened in this series.
Background on crude oil inventories
After reaching 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.
Since May this year, inventories have mostly been falling as refiners have been operating at high levels during the summer driving season. However, as refiners enter fall maintenance season, crude oil inventories typically rise during this time of the year, as refiners reduce their demand for crude inputs.
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.