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Does the Inventory Spread Hint at More Upside for Oil?

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Inventory data

US commercial crude oil inventories rose by 1.9 MMbbls (million barrels) to 459 MMbbls in the week ended November 10. However, the market had expected a fall of 2.1 MMbbls. The EIA reported oil inventories on November 15.On the same day, US crude oil prices fell 0.7%.

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Inventories spread

US crude oil inventories staying above their five-year average could steer oil (UCO)(BNO)(DBO) prices. If the difference or “inventories spread” rises, then it could obstruct oil’s rise. Moreover, a contraction in the inventories spread could push oil prices higher.

In the week ended November 10, the inventories spread was 14.8%, 1.7 percentage points lower than a week before. In fact, US crude oil (OIIL)(USO) prices rose 2.4% after the inventory data came out on November 15.

Market expectations

Again, the market expects a fall of 1.4 MMbbls in US crude oil stockpiles. The API report suggested a fall of ~6.4 MMbbls in US crude oil inventories. The EIA will publish its oil inventory report on November 22, 2017. Any rise up to 273 thousand barrels will not increase the inventories spread.

If the spread continues to fall, it would be bullish for crude oil prices.

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