Oil Inventory Spread Could Help Oil Prices Rise


Nov. 20 2020, Updated 5:14 p.m. ET

US oil inventory fell

On May 24, 2017, the EIA (U.S. Energy Information Administration) released crude oil inventory data for the week ending May 19, 2017. It reported a fall of ~4.4 MMbbls (million barrels) in oil inventories. US commercial crude oil inventories fell to 516.3 MMbbls.

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Oil inventory spread falling

In the week ending May 19, 2017, oil inventories were ~98.2 MMbbls higher than their five-year average. The relationship between crude oil prices and the inventories spread is inverse, as you can see in the above graph.

Oil prices entered a downturn since January 2015, following a rise in the inventory spread. In early 2016, oil prices fell to a 12-year low.

What happened to the inventory spread last week?

On a week-over-week basis, the crude oil inventories spread fell by 12.2 MMbbls in the week ending May 19, 2017. However, oil prices fell 3.5% in the trailing week. If the inventories spread continues to fall, it could improve the sentiment and help crude oil prices rise.

On June 1, the EIA will report its inventory data for the week ending May 26, 2017.

Inventory data

Oil-weighted and natural gas–weighted energy stocks follow oil’s (UCO)(BNO) movements closely. The relationship could drive the entire energy sector and broader market indexes such as the S&P 500 (SPY) (IVV) (SPX-INDEX) and the Dow Jones Industrial Average (DIA) (DJIA-INDEX).

Movements in crude oil could also be crucial for the following energy ETFs:

  • the PowerShares DWA Energy Momentum ETF (PXI)
  • the Energy Select Sector SPDR ETF (XLE)
  • the Guggenheim S&P 500 Equal Weight Energy ETF (RYE)
  • the ProShares UltraShort Bloomberg Crude Oil ETF (SCO)

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