Higher Inventories Might Support US Crude Oil’s Rise

US crude oil inventory data

According to the EIA’s (U.S. Energy Information Administration) report released on June 20, US crude oil inventories fell by ~5.9 MMbbls (million barrels) to ~426.5 MMbbls in the week ending June 15. The market expected a fall of ~3.7 MMbbls based on an S&P Global Platts survey. On June 20, US crude oil August futures rose 1.2%.

Higher Inventories Might Support US Crude Oil’s Rise

In the week ending June 15, US crude oil inventories were 1.5% below their five-year average. In the previous week, the inventories were 0.4% lower than the five-year average. The difference is called the “inventories spread.” Oil prices and the inventories spread usually move inversely, as shown in the above chart. The expansion in the negative inventories spread in the week ending June 15 could be a bullish factor for oil prices.

Inventories spread, oil prices, and energy stocks

Since the release of the EIA’s data on June 20, US crude oil August futures have risen 3.6%. On June 20–25, Whiting Petroleum (WLL), California Resources (CRC), and Oasis Petroleum’s (OAS) returns were 3.8%, 1.1%, and -0.1%, respectively—the outperformers on our list of oil-weighted stocks.

Since June 20, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the iShares US Oil & Gas Exploration & Production ETF (IEO) have fallen ~2.1% and ~2.7%, respectively. These ETFs hold energy stocks.

How a rise in inventory levels could still support oil prices

A fall by more than ~3.4 MMbbls in US crude oil inventories in the week ending June 22 could help the inventories spread expand more into the negative territory. However, any rise below 2.98 MMbbls in US crude oil inventories will ensure that the inventories spread remains in the negative zone—a factor that might support US crude oil’s rise.

The EIA is scheduled to announce its US crude oil inventory data on June 27. In the past five years, US crude oil inventories have fallen by an average of ~3.5 MMbbls at this time of the year.