US crude oil inventory data
According to the EIA (U.S. Energy Information Administration), in the week ended May 4, US crude oil inventories fell by ~2.2 MMbbls (million barrels) to ~433.8 MMbbls. However, the market expected a fall of 0.4 MMbbls, based on the S&P Global Platts Survey. That day, US crude oil June futures rose 3%, supported by the larger-than-expected fall in US crude oil inventories and the US exit from the Iran nuclear deal on May 8.
In the week ended May 4, US crude oil inventories were 2.2% lower than their five-year average, and a week before that, they were 2.4% lower than their five-year average—this difference is called the “inventory spread.” Oil prices and the inventory spread usually move inversely, as shown in the above graph. Therefore, a contraction in the inventory spread could drag down oil prices.
Inventory spread and oil prices
Since the EIA data was released on May 9, US crude oil prices have fallen 0.3%. Between May 9 and May 14, Diamondback Energy (FANG), Concho Resources (CXO), and RSP Permian (RSPP) fell 9%, 5.6%, and 5%, respectively—the most on our list of oil-weighted stocks.
Since May 9, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the iShares US Oil & Gas Exploration & Production ETF (IEO) have risen ~1% and 0.6%. As these ETFs hold energy stocks, the fall in oil prices may have limited their upside.
What change in inventory levels might support oil prices?
A fall of more than ~396,000 barrels in US crude oil inventories in the week ended May 11 could help the inventory spread expand into the negative zone. The EIA is scheduled to announce US crude oil inventory data on May 16. Over the past five years, US crude oil inventories have fallen by an average of ~405,000 at this time of year.