Inventories Spread: Can Oil Prices Continue to Rise?



Inventory data

In the week ended October 27, 2017, the US commercial crude oil stockpiles fell 2.4 MMbbls (million barrels), according to EIA (U.S. Energy Information Administration) data on November 1, 2017. But on the same day, US crude oil prices fell 0.1%.

Inventories spread

US crude oil inventories that are above their five-year average could be a bearish factor for oil (DBO) (USL) prices. However, if the difference between US crude oil inventories and their five-year average, or the inventories spread, contracts, it could help oil prices rise.

In the week ended October 27, 2017, the inventories spread fell 1.9 percentage points. In the same week, US crude oil inventories were 14.7% above their five-year average. Since the EIA’s announcement of the inventory data on November 1, 2017, US crude oil prices have risen 5.3%.

As you can see in the above chart, the inventories spread has been on a downward trajectory after the week ended September 22, 2017. Since September 22, 2017, oil prices have risen 12.9%. So if this trend continues, oil (UCO) (BNO) (OIIL) prices could see higher levels.

Market estimates

Based on market estimates, US commercial crude oil stockpiles could fall 2.5 MMbbls in the week ended November 3, 2017. The API (American Petroleum Institute) reported a fall of ~1.6 MMbbls in oil inventories. But only a fall of more than ~4.7 MMbbls could help the inventories spread contract further. If the inventories spread expands again, it could be negative for oil prices. The EIA will release its oil inventory report on November 8, 2017.

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