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Rise in US Oil Inventories Could Help Oil Rise More

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US crude oil inventory data

In the week ending April 13, US crude oil inventories fell by 1.1 MMbbls (million barrels) to ~427.6 MMbbls. The market expected a fall of 0.5 MMbbls in the EIA’s data on April 18. On the same day, US crude oil June futures rose 2.9%.

For the week ending April 13, US crude oil inventories were 3.4% less than their five-year average—80 basis points less than a week ago. The difference is called the “inventories spread.” Oil prices and the inventories spread usually move inversely, as you can see in the above graph. So, the expansion in the inventories spread more into the negative zone could be bullish for oil prices.

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Inventories spread and oil prices

Since the EIA data were released on April 18, US crude oil prices have only risen 0.2% to date. Profit-booking and President Trump’s comment on “artificially high” oil prices could have limited the upside in US crude oil prices.

On April 18–23, oil-weighted stocks Concho Resources (CXO), Occidental Petroleum (OXY), and Denbury Resources (DNR) rose 0.2%, 1.7%, and -1.6%, respectively.

Since April 18, the iShares Global Energy ETF (IXC) and the iShares US Energy ETF (IYE) have risen 0.1% and 0.7% to date. These ETFs hold energy stocks.

Higher oil inventory

Any rise less than ~2.68 MMbbls in US crude oil inventories for the week ending April 20 will help the inventories expand into the negative zone. Obviously, a fall in US crude oil inventories would be bullish for oil prices. The EIA will announce the US crude oil inventory data on April 25. In the past five years, the average rise in US crude oil inventories for this time of the year was ~2.78 MMbbls.

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