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US Crude Oil Inventory Hit the Highest Level Ever: What’s Next?

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EIA’s crude oil inventories   

On April 13, 2016, the EIA (U.S. Energy Information Administration) released its weekly crude oil inventory report. It reported that the US crude oil inventory rose by 6.6 MMbbls (million barrels) to 536.5 MMbbls between April 1, 2016, and April 8, 2016. Platt’s surveys estimated that the US crude oil inventory could have risen by 1 MMbbls for the same period. The larger-than-expected rise in the US crude oil inventory limited the upside for crude oil prices. To find out more about crude oil prices, read the previous part of the series. The US crude oil inventory rose due to the fall in the refinery demand and rise in US crude oil imports.

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US crude oil inventory by region   

The EIA divides the US into five storage regions:

  1. East Coast
  2. Midwest
  3. Gulf Coast
  4. Rocky Mountain
  5. West Coast

The Gulf Coast and Midwest regions contribute to the majority of the US crude oil stocks. In the Gulf Coast region, crude oil inventories rose by 7 MMbbls to 284.5 MMbbls for the week ending April 8, 2016—compared to the previous week. In contrast, crude oil inventories in the Midwest fell to 153.7 MMbbls from 155.6 MMbbls for the same period. The East Coast region’s crude oil stocks were flat at 17.8 MMbbls for the same period. Crude oil stocks rose marginally by 0.9 MMbbls to 56.1 MMbbls in the West Coast region for the same period. The Rocky Mountain crude oil stocks rose to 24.4 MMbbls from 23.7 MMbbls for the same period.

The ups and downs in US crude oil stocks impact storage costs. To learn more, read Crude Oil Storage Costs Rose 9 Times, US Crude Tests New Limits and Record US Crude Oil Inventory Led to a New Storage Space.

Impact of record US crude oil inventory 

The total US crude oil inventory hit an all-time high of 536.5 MMbbls for the week ending April 8, 2016. US crude oil inventories are 11% more than they were during the same period in 2015. They’re also 100 MMbbls more than the five-year average crude oil inventory. Record US crude oil inventories would limit the upside for crude oil prices. Multiyear low crude oil prices have a negative impact on oil and gas producers’ margins like Ultra Petroleum (UPL), Bill Barrett (BBG), Linn Energy (LINN), and Carrizo Oil & Gas (CRZO).

The contango market and record US crude oil inventory benefit crude oil tanker companies like Frontline (FRO) and DHT Holdings (DHT).

The roller coaster ride in crude oil prices affects ETFs like the PowerShares DWA Energy Momentum (PXI), the Fidelity MSCI Energy (FENY), the First Trust Energy AlphaDEX Fund (FXN), the DB Crude Oil Double Short ETN (DTO), the VelocityShares 3x Inverse Crude Oil ETN (DWTI), and the Direxion Daily Energy Bear 3x ETF (ERY).

Read the next part of the series to learn more about US crude oil production, refinery demand, and crude oil imports.

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