Inventories Spread Could Boost Your Long Bets on Oil


Nov. 20 2020, Updated 4:36 p.m. ET

Inventory data

In the week ending July 7, 2017, US crude oil inventories fell by 7.6 MMbbls (million barrels) to 495.4 MMbbls, as reported by the EIA on July 12, 2017. The fall was more than double the market’s expectations. However, US crude oil active futures only rose 1% on July 12, 2017.

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Crude oil inventories spread

The inventories spread is amount that US crude oil inventories are above their five-year average. The spread can impact oil prices. The above graph shows an inverse relationship between the spread and oil prices.

In the week ending July 7, 2017, the crude oil inventories spread was 26.1%—compared to 26.3% the previous week. Since the EIA announced the latest inventory data on July 12, 2017, US crude oil active futures rose 2%. So, a contraction in the inventories spread was followed by gains in oil prices.

Will the inventories spread continue to fall?

The EIA’s crude oil inventory report for the week ending July 14, 2017, will be announced on July 19, 2017. Analysts expect a fall of 3.6 MMbbls in crude oil inventories. On July 18, contrary to analysts’ forecasts, the API reported a rise of 1.6 MMbbls in crude oil inventories for the week ending July 14, 2017.

If crude oil inventories and the inventories spread rise, based on the inverse relationship we discussed above, it could pressure crude oil (UCO) (BNO) (USO) prices and even cap gains in broader markets such as the S&P 500 Index (SPY) and the Dow Jones Industrial Average (DIA). The energy constituents of these equity indexes could be impacted by a fall in oil prices.

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