OECD’s crude oil inventories
The EIA (U.S. Energy Information Administration) estimates that OECD’s (Organisation for Economic Cooperation and Development) crude oil inventories increased 0.9% to 2,840.5 MMbbls (million barrels) in May—compared to the previous month. The inventories rose for the second consecutive month after hitting almost a three-year low in March. However, the inventories have declined by 208 MMbbls or 6.8% year-over-year.
Brent crude oil prices have risen ~14% since January 1, 2017. The Vanguard Energy ETF (VDE) increased ~4.7% during the same period. VDE aims to follow the performance of an index of energy stocks. HollyFrontier (HFC), Delek US Holdings (DK), Valero (VLO), and PBF Energy (PBF) account for ~4.3% of VDE’s holdings. These stocks have risen ~135%, ~126%, 83%, and ~81%, respectively, since January 1, 2017. They were the biggest percentage gainers in VDE’s portfolio during this period.
OECD’s crude oil inventories peaked
OECD’s oil inventories hit a record high of ~3,115 MMbbls in July 2016. Brent crude oil prices averaged ~$45 per barrel in July 2016. OECD’s oil inventories have declined ~9% since July 2016. However, Brent oil prices have increased ~50.7% since July 1, 2016. Inventories and oil prices are inversely related. The relationship can be seen in the above chart.
OECD’s oil inventories averaged 3,051.4 MMbbls in 2016 and 2,990 MMbbls in 2017. The EIA estimates that the inventories could average 2,847 MMbbls in 2018 and 2,915.5 MMbbls in 2019.
The expectation of a rise in non-OPEC production in 2018 and 2019 could lead to an increase in OECD’s crude oil inventories.
OECD’s oil inventories were 0.2% below the five-year average in May, which is bullish for oil prices. If the inventories rise above the five-year average, it could be bearish for oil prices.