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US Crude Oil Inventories Limit the Upside for Oil Prices

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Feb. 1 2018, Updated 8:33 a.m. ET

US crude oil inventories  

On January 31, 2018, the EIA published the weekly crude oil inventory report. The EIA reported that US crude oil inventories increased by 6.8 MMbbls (million barrels) to 418.3 MMbbls on January 19–26, 2018. However, inventories decreased by 76.4 MMbbls or 15.4% from a year ago.

A Reuters poll estimated that US crude oil inventories could have increased by 0.1 MMbbls on January 19–26, 2018. A larger-than-expected rise in inventories limited the upside for oil (UWT) (DWT) prices on January 31, 2018. Inventories also rose for the first time in 11 weeks. In Part 1 of this series, we discussed the bullish drivers for crude oil.

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Refinery demand, imports, and exports  

US crude oil refinery demand dropped by 470,000 bpd (barrels per day) or 2.8% to 16,013,000 bpd on January 19–26, 2018. However, demand increased by 66,000 bpd or 0.4% YoY (year-over-year).

US crude oil imports increased 4.8% to 8,430,000 bpd on January 19–26, 2018. US crude oil imports also increased by 140, 000 bpd or ~2% YoY.

US crude oil exports increased 25% to 1,765,000 bpd on January 19–26, 2018. The exports also increased by 1,216,000 bpd or 221% YoY. Changes in supply and demand impact inventories.

Impact  

US crude oil (USO) prices increased 12.4% in 2017, while US crude oil inventories declined ~12% during the same period. Inventories declined ~22% from their peak, which is bullish for oil prices. Higher oil prices favor energy companies (XES) (IEZ) like W&T Offshore (WTI), Bill Barrett (BBG), Parsley Energy (PE), and Northern Oil & Gas (NOG).

However, US oil inventories are 4.3% above their five-year average, which is bearish for oil prices. If the difference declines, it’s a bullish sign for oil (UCO) prices.

Next, we’ll discuss US crude oil production.

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