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Why the Inventories Spread Indicates Higher Oil Prices

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Inventory data

In the week ended October 13, 2017, US crude oil stockpiles have fallen by 5.7 MMbbls (million barrels) to 456.5 MMbbls, according to EIA (US Energy Information Administration) data released on October 18, 2017. The fall was the fourth in a row since the week ended September 22, 2017. Since September 15, 2017, the US refinery utilization rate has risen by 1.3 percentage points, and US oil exports have risen ~0.9 million barrels a day. These two factors could have drained 16.3 MMbbls from US crude oil inventories since September 15, 2017. Between September 15, 2017, and October 23, 2017, US crude oil rose 5.2%.

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Inventories spread

The difference between US commercial crude oil stockpiles and their five-year average is called the “inventories spread.” Currently, inventories exceed their five-year average by 17.6%. If the inventories spread rises, it could put downward pressure on oil (UCO) (BNO) (OIIL) prices. Similarly, any fall in the inventories spread may help oil prices rise.

In the week ended October 13, 2017, the inventories spread was 2.6 percentage points lower than a week before. Since the EIA released this inventory data on October 18, 2017, US crude oil prices have risen 0.4% to date.

Market forecast

Based on market expectations, US commercial crude oil stockpiles could fall by 2.6 MMbbls in the week ended October 20, 2017. The EIA will report US crude oil stockpiles data on October 25, 2017. The API (American Petroleum Institute) reported a build-up of ~0.5 MMbbls in US crude oil stockpiles. But, any rise below ~4.9 MMbbls will not increase the inventories spread. The trends in the inventories spread are crucial for oil (USO) (USL) prices.

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