US crude oil inventories
In its Weekly Petroleum Status Report released on October 28, 2015, the EIA (U.S. Energy Information Administration) reported an increase of 3.4 MMbbls (million barrels) in crude oil inventories for the week ended October 23, 2015. Analysts were expecting inventories to rise by a slightly larger 3.75 MMbbls.
What does this mean?
When inventories or stocks rise less than expected, it’s usually bullish for crude oil prices (USO). This could be positive for major oil producers such as Hess (HES), ConocoPhillips (COP), and EP Energy (EPE). Hess and ConocoPhillips are part of the Vanguard Energy ETF (VDE). Together, they comprise ~6% of the fund.
Higher prices may encourage these upstream companies to produce more crude oil. This would mean higher volumes and revenues for MLPs such as Plains All American Pipeline (PAA).
After the release of the bullish data on October 28, WTI (West Texas Intermediate) crude oil prices rose ~6.3% and settled at $45.9 per barrel. In the following parts, we’ll see whether there were other factors at play that offered support to crude oil prices.
You can follow our recent weekly recap of crude oil prices at Iran Deal, Chinese Data, and Crude Oil Prices Last Week.
Background on crude oil inventories
After reaching a peak of 490.9 MMbbls in the week ended April 24, 2015, inventories started turning downward for the first time in four months in the week ended May 1, 2015, as shown in the graph above.
Since May this year, inventories have mostly been falling, as refiners have been operating at high levels during the summer driving season. However, in the past couple of weeks, refiners lowered their demand as they performed seasonal maintenance in preparation for the upcoming winter, leading to an upward trend in inventories.
However, this week’s data suggests the increase in inventories is slowing down, indicating that the maintenance season is approaching its end and that demand could soon pick up.
Importance of crude oil and inventories
Crude oil is one of the world’s most important energy sources. Its refined products have numerous 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.