US crude oil inventories
In its Weekly Petroleum Status Report released on November 4, 2015, the EIA (U.S. Energy Information Administration) reported an increase of 2.8 MMbbls (million barrels) in crude oil inventories for the week ended October 30, 2015. Analysts were expecting inventories to rise by a slightly smaller 2.5 MMbbls.
What does this mean?
When inventories or stocks rise more than expected, it’s usually bearish for crude oil prices (USO). This could be negative 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.
Lower prices may discourage these upstream companies to produce more crude oil. This would mean lower volumes and revenues for MLPs such as MarkWest Energy Partners (MWE).
After the release of the bearish data on November 4, WTI (West Texas Intermediate) crude oil prices fell ~3.3% and settled at $46.32 per barrel.
You can follow our recent weekly recap of crude oil prices at Bullish Inventory, US Oil Rigs Support Crude Prices.
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.
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.