Oil Prices Could Fall after the EIA’s Inventory Data

In the week ending March 23, 2018, US crude oil inventories rose by 1.64 MMbbls (million barrels) to ~429.94 MMbbls. The market expected a rise of 0.5 MMbbls in the EIA’s data on March 28, 2018. On the same day, US crude oil May futures fell 1.3%.

In the week ending March 23, 2018, US crude oil inventories were 1.5% less than their five-year average—a bullish factor for oil prices. The difference is called the “inventories spread.” Oil prices and the inventories spread usually move inversely. The above graph illustrates this relationship. In the week ending March 16, 2018, the inventories spread was at -0.9%.

Since the EIA data were released on March 28, 2018, US crude oil prices have declined 2.1% to date. In Part 1, we discussed the factors that might have dragged oil prices.

During this period, oil-weighted stocks like Concho Resources (CXO), Occidental Petroleum (OXY), and Denbury Resources (DNR) had returns of -2%, 2.4%, and -4.1%, respectively.

The iShares Global Energy ETF (IXC) was flat, while the iShares US Energy ETF (IYE) has fallen 0.1% since March 28, 2018. In fact, the S&P 500 Index fell 0.9% during this period. The sentiments in the broader market are also important for energy stocks and ETFs that hold the stocks.

In the week ending March 30, 2018, the fall in US crude oil inventories should be more than 273,000 barrels for the inventories spread to expand more into the negative zone. However, the market expects a rise of 1.667 MMbbls in the EIA data to be released on April 4, 2018, which could mean more bearish pressure on oil prices.