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Will the Bloodbath Continue with EIA Crude Oil Inventory Data?

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Jan. 21 2016, Updated 7:58 a.m. ET

API crude oil inventory report

The API (American Petroleum Institute) published its weekly crude oil inventory report yesterday. The US industry group reported that the US crude oil inventory rose by 4.6 MMbbls (million barrels) for the week ending January 15, 2016. The rise in the US crude oil inventory led to collateral damage in crude oil prices in yesterday’s trade, as covered in the previous part of this series. Last week’s API report stated that the crude oil inventory had fallen by 3.9 MMbbls for the week ending January 8. The crude oil inventory at Cushing, Oklahoma, also rose by 0.63 MMbbls for the week ending January 15.

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EIA crude oil inventory report and market estimates 

The API report is the precursor to the EIA’s (U.S. Energy Information Administration) weekly petroleum status report. The EIA inventory report is scheduled for release today. The government agency reported the US crude oil inventory had risen by 0.2 MMbbls (million barrels) to 482.6 MMbbls for the week ending January 8, 2016. Market surveys from Bloomberg to Platts suggest that the crude oil inventory may have risen by 2.2 MMbbls–2.9 MMbbls for the week ending January 15, 2016.

The API data show a greater-than-expected increase in the crude oil inventory. If the EIA inventory report is consistent with the API report, we could see carnage in the crude oil market. The current crude oil inventory is at an 80-year high for this time of year. It’s also more than 25% higher than last year’s levels. The crude oil inventory may have increased due to a rise in oil imports as a result of weaker Brent crude oil prices last week. The weaker seasonal demand due to refinery maintenance or glut in the refined products markets may also have led to a rise in the crude oil inventory. Read more about the refined products inventory in the next part of this series.

The record US inventory, high global inventory, and wider contango market benefit oil tankers like Nordic American Tankers (NAT), DHT Holdings (DHT), and Ardmore Shipping (ASC). To learn more about contango market traders, read How the Fed Influences Contango Crude Oil Market Traders. However, these factors affect the profitability of oil producers like Devon Energy (DVN), Apache (APA), and EOG Resources (EOG).

The volatility in the energy market affects ETFs and ETNs like the Vanguard Energy ETF (VDE), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the VelocityShares 3x Long Crude Oil ETN (UWTI), and the First Trust Energy AlphaDEX Fund (FXN).

In the next part of this series, we’ll analyze how gasoline and distillate inventories may add fuel to the fire.

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