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Will US Crude Oil Inventories Fall and Support Oil Prices?

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Crude oil prices   

February WTI (West Texas Intermediate) crude oil (USO) (UCO) (XOP) (ERY) (RYE) (USL) (ERY) futures contracts fell 0.2% to $53.2 per barrel in electronic trade at 4:50 AM EST on January 5, 2017. Prices fell despite the API’s (American Petroleum Institute) bullish crude oil inventory report.

Lower crude oil prices could have a negative impact on the earnings of oil and gas producers like Goodrich Petroleum (GDP), Noble Energy (NBL), Northern Oil & Gas (NOG), Apache (APA), Chevron (CVX), SM Energy (SM), and Sanchez Energy (SN).

API’s crude oil inventories  

On January 4, 2017, the API (American Petroleum Institute) released its weekly crude oil inventory report. It reported that US crude oil inventories fell by 7,400,000 barrels between December 23 and December 30, 2016, which was the biggest draw since September 2016. Crude oil (FENY) (XLE) (XOP) prices fell in post-settlement trade on January 4, 2017, despite the API’s bullish crude oil inventory report. For more on crude oil prices and the oil producer meeting, read part 1 of this series.

Moves in crude oil prices also impact ETFs such as the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the iShares Global Energy ETF (IXC), the iShares US Energy ETF (IYE), and the United States Brent Oil ETF (BNO).

The API added that Cushing crude oil inventories rose by 482,000 MMbbls (million barrels) between December 23 December 30, 2016, which could have caused the weakness in crude oil prices. Read Large Cushing Inventory Build Could Limit Upside for Crude Prices to learn more. 

EIA’s crude oil inventories 

The API’s report will be followed by the EIA’s (U.S. Energy Information Administration) weekly crude oil inventory report on January 5, 2017. The data will be for the week ending December 30, 2016.

For the week ending December 23, the EIA reported that US crude oil inventories rose by 0.6 MMbbls (million barrels) to 486.1 MMbbls. For more details, read Build in US Crude Oil Inventories Impacted Crude Oil Prices. For more on crude oil price drivers in 2017, read What Can Investors Expect in the Crude Oil Market in 2017? and Decoding the World Oil Supply and Demand Gap in 2017.

A market survey estimates that US crude oil inventories have fallen by 2,152,000 barrels between December 23 and December 30, 2016. If the EIA reports a larger-than-expected fall in inventories, it could support crude oil prices. On the other hand, an unexpected rise in US crude oil inventories could pressure crude oil prices.

Impact of US crude oil inventories 

US crude oil inventories hit an all-time high of 543.6 MMbbls in the week ending April 29, 2016. Since then, they have fallen 10.6% from the all-time highs. Falling inventories would support crude oil prices.

High crude oil prices could have a positive impact on the earnings of oil and gas producers such as Goodrich Petroleum (GDP), Noble Energy (NBL), Northern Oil & Gas (NOG), Apache (APA), Chevron (CVX), SM Energy (SM), and Sanchez Energy (SN).

In the next part of this series, we’ll see how gasoline inventories impact crude oil prices.

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