A Fall in Oil Inventories Might Support Oil’s Rise

US crude oil inventory data

According to the EIA’s (U.S. Energy Information Administration) report released on May 16, US crude oil inventories fell by ~1.4 MMbbls (million barrels) to ~432.4 MMbbls in the week ending May 11. However, the market expected a larger fall of 2.3 MMbbls based on an S&P Global Platts survey. On May 16, US crude oil July futures rose 0.3% and were supported by geopolitical factors.

A Fall in Oil Inventories Might Support Oil’s Rise

In the week ending May 11, US crude oil inventories were 2.4% lower than their five-year average. The previous week, they were 2.2% lower than their five-year average. The difference is called the “inventories spread.” Oil prices and the inventories spread usually move inversely, as shown in the above graph. An expansion in the negative inventories spread could be a positive development for oil prices.

Inventories spread, oil prices, and energy stocks

Since the EIA data were released on May 16, US crude oil July futures have risen 1.1%. On May 16–21, Denbury Resources (DNR), California Resources (CRC), and Carrizo Oil & Gas (CRZO) rose 14.3%, 8.5%, and 7.2%, respectively—the largest gainers on our list of oil-weighted stocks.

Since May 16, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the iShares US Oil & Gas Exploration & Production ETF (IEO) have risen ~4.7% and 3.4%. These ETFs hold energy stocks.

Fall in inventory levels might support oil prices

A fall of more than ~3.03 MMbbls in US crude oil inventories in the week ending May 18 could help the inventories spread expand more into the negative zone. The EIA is scheduled to announce the US crude oil inventory data on May 23. In the past five years, US crude oil inventories have fallen by an average of ~3.1 MMbbls at this time of the year.