Change in Inventory Levels Could Support Oil Prices

US crude oil inventory data

In the week ending April 27, US crude oil inventories rose by ~6.2 MMbbls (million barrels) to ~436 MMbbls. However, the market expected a rise of 1 MMbbls in the EIA’s data on May 2. On the same day, US crude oil June futures rose 1%. Concerns about the US imposing sanctions on Iran could have helped oil ignore the bearish inventory data.

Change in Inventory Levels Could Support Oil Prices

For the week ending April 27, US crude oil inventories were 2.4% less than the five-year average. A week ago, US crude oil inventories were 3.5% less than the five-year average. 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 contraction in the negative inventories spread could drag oil prices.

Inventories spread and oil prices

Since the EIA data were released on May 2, US crude oil prices have risen 4.1% to date. On May 2–7, California Resources (CRC), WPX Energy (WPX), and Whiting Petroleum (WLL) rose 22.4%, 3.6%, and 3%, respectively—the largest gainers during this period on our list of oil-weighted stocks.

Since May 2, the iShares Global Energy ETF (IXC) and the iShares US Energy ETF (IYE) have risen 0.7% and 0.6% to date. These ETFs hold energy stocks.

What change in inventory levels may support oil prices?

A fall of more than ~2.96 MMbbls in US crude oil inventories for the week ending May 4 would help the inventories spread expand more into the negative zone. The EIA is scheduled to announce the US crude oil inventory data on May 9. In the past five years, US crude oil inventories for this time of the year have fallen ~3 MMbbls on average.