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US Crude Oil Inventories Fell 10% in the Last 10 Weeks

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Crude oil futures 

US crude oil futures (UCO) (DWT) contracts for February delivery fell 1.3% to $63.15 per barrel at 1:15 AM EST on January 19, 2018. However, prices are near three-year highs. It favors funds like the iShares U.S. Energy ETF (IYE) and the Vanguard Energy ETF (VDE). These funds have exposure to US energy companies.

March E-mini S&P 500 (SPY) futures contracts fell 0.07% from their previous settle to 2,794.25 at 1:15 AM EST on January 19, 2018.

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US crude oil inventories

On January 18, 2018, the EIA published the weekly crude oil inventory report. It reported that US crude oil inventories declined by 6.9 MMbbls (million barrels) or 1.6% to 412.7 MMbbls on January 5–12, 2018. The inventories also decreased by 72.8 MMbbls or 15% from a year ago.

A Bloomberg survey estimated that US crude oil inventories would have declined by 3.2 MMbbls on January 5–12, 2018. A larger-than-expected decline in US oil inventories limited the downside for oil (SCO) (UWT) prices on January 18, 2018. Moves in oil prices impact energy companies (IXC) (IEZ) like SM Energy (SM), Hess (HES), and Halliburton (HAL).

Impact

US oil (DBO) prices increased ~12.4% in 2017. US crude oil inventories declined ~12% during the same period. Inventories declined ~23% from their peak. US oil inventories decreased for the ninth consecutive week. Inventories also fell 10% or by 44.4 MMbbls in the last ten weeks. If the momentum continues in 2018, it would be bullish for oil (USO) prices.

However, US oil inventories are 6% above their five-year average. It’s bearish for oil (USL) prices. If the difference declines, it’s a bullish sign for oil (UCO) prices.

Next, we’ll discuss the most important bearish driver for crude oil prices in 2018.

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