Crude oil inventory data
US commercial crude oil inventories rose by ~9.5 MMbbls (million barrels) in the week ending on February 10, 2017—compared to the previous week. Inventories were at a historic level of ~518.1 MMbbls for the week, going back to at least 1982, according to EIA data on February 15, 2017. US crude oil inventories rose for the sixth consecutive week.
Inventory spread and crude oil
The relationship between crude oil inventories and crude oil prices is inverse, as you can see in the above graph. The spread between crude oil inventories and their five-year average widened starting in January 2015 after it broke four-year highs and hit record levels. During that period, crude oil prices (USO) (OIIL) (SCO) (UCO) (BNO) were falling.
Crude oil prices bottomed out in early 2016. Crude oil inventories topped out as well. The inverse relationship was also seen in smaller magnitudes in the following months. For the week ending on February 10, 2017, the inventories spread was at the highest level since January 2011.
It will be interesting to see the impact of the EIA’s report for the week ending on February 17, 2017. The data will be released on February 23, 2017. A rise in the inventory spread would pressure crude oil prices.
Impact on ETFs
So, crude oil inventories, that exceed their historic averages, are important for ETFs such as the United States Brent Oil ETF (BNO), the PowerShares DWA Energy Momentum ETF (PXI), the Energy Select Sector SPDR ETF (XLE), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), and the ProShares UltraShort Bloomberg Crude Oil (SCO).
In the next part, we’ll analyze the relationship between crude oil and the US Dollar Index (UUP).