Why WTI Prices Tumbled after the EIA’s Inventory Report on November 12



Crude oil stocks

In its weekly Petroleum Status Report released on November 12, the EIA (US Energy Information Administration) stated that US crude oil stocks rose by 4.2 MMbbls (million barrels) to 487.0 MMbbls for the week ending November 6, 2015.

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WTI price movements

Analysts were expecting inventories to rise by 1.0 MMbbls. But inventories rose by more than four times that of analyst expectations. Due to the increase in the crude oil production and imports, both production and imports rose by 0.02 MMbbls and 0.01 MMbbls for the week ending November 6, 2015.

When inventories increase by more than analyst expectations, it is usually bearish for crude oil prices (USO). WTI (West Texas Intermediate) crude oil prices fell by $1.33 per barrel after the inventory report was released on November 12, closing at $41.60 per barrel on November 12, 2015.

Along with the inventory report, the EIA’s STEO (Short-Term Energy Outlook) forecast is also the one of the major reasons that oil prices tumbled. The STEO forecast projected lower crude prices for 2016, which raised concerns about future demand growth for crude oil, which in turn led to oil prices go below two-month lows.

Reading the impact

An increase in the crude stocks would likely negatively affect crude oil prices. A fall in the crude prices decreases the revenues of oil producers like Anadarko Petroleum Corporation (APC), Apache Corporation (APA), Chevron Corporation (CVX), Cimarex Energy Company (XEC), Occidental Petroleum Corporation (OXY), and Murphy Oil Corporation (MUR).

Some of the above companies are components of the Energy Select Sector SPDR ETF (XLE) and the Vanguard Energy ETF (VDE).

Lower prices may discourage these oil-producing and exploration companies to produce more crude oil. This would result in lower production volumes and revenues for MLPs such as Plains All American Pipeline (PAA).

In the next part of this series, we’ll look at refinery inputs in November.


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