17 Jul

The OECD’s Oil Inventories: Are the Oil Bulls Back?

WRITTEN BY Gordon Kristopher

The OECD’s crude oil inventories

The EIA estimates that the OECD’s (Organisation for Economic Cooperation and Development) oil inventories decreased by 0.9 MMbbls (million barrels) to 2,834.3 MMbbls in June compared to the previous month. Inventories also declined by 178.0 MMbbls (5.6%) year-over-year. Inventories almost hit a three-year low of 2,801.0 MMbbls in March.

The OECD’s oil inventories dropped by ~228.3 MMbbls (~7.5%) from January 2017 to June due to supply cuts, unexpected production outages, and strong demand.

The OECD’s Oil Inventories: Are the Oil Bulls Back?

Brent oil prices have risen ~30.0% since January 1, 2017. The Vanguard Energy ETF (VDE) increased ~3.9% during the same period. VDE tracks the performance of an index of energy stocks.

HollyFrontier (HFC), Delek US Holdings (DK), Valero (VLO), and PBF Energy (PBF) account for ~4.0% of VDE’s holdings. These stocks have risen ~122.0%, ~103.0%, 65.0%, and ~62.0%, respectively, since January 1, 2017. These stocks were the top percentage gainers in VDE’s portfolio during this period.

OECD’s crude oil inventories peaked

The OECD’s oil inventories hit a record high of ~3,115.0 MMbbls in July 2016. Brent oil prices averaged ~$45.00 per barrel during the same period. The OECD’s oil inventories have declined ~9.0% since July 2016.

However, Brent oil prices have increased ~43.0% since July 1, 2016. Inventories and oil prices are inversely related, which is illustrated in the chart above.

Impact

The OECD’s oil inventories averaged 3,051.4 MMbbls in 2016 and 2,991.0 MMbbls in 2017. The EIA estimates that these inventories could average 2,839.0 MMbbls in 2018 and 2,936.0 MMbbls in 2019. The expectation of a rise in non-OPEC production in 2018 and 2019 could lead to an increase in the OECD’s crude oil inventories.

The OECD’s oil inventories were 0.2% below the five-year average in June, which is bullish for oil prices. If these inventories rise above the five-year average, it could be bearish for crude oil prices.

Please read Escalating Trade War: S&P 500 and Crude Oil Fell for the latest updates on crude oil.

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