Rising Inventories Spread Might Drag Oil Prices


Nov. 20 2020, Updated 4:06 p.m. ET

Oil inventories and their five-year average

In the week ending on November 2, US crude oil inventories were 3% above their five-year average—one percentage point more than the previous week. Oil prices and the inventories spread usually move inversely, as you can see in the following chart. If the inventories spread expands more into the positive territory, it might drag down oil prices in the coming weeks. The inventories spread is the difference between inventories and their five-year average.

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Oil prices, energy stocks, and the inventories spread

Since the EIA (U.S. Energy Information Administration) data were released on November 7, US crude oil December futures have fallen 2.8%. On October November 7–12, oil-weighted stocks Denbury Resources (DNR), California Resources (CRC), and Oasis Petroleum (OAS) fell 12.4%, 13.1%, and 14.5%, respectively, and underperformed their peers.

Since November 7, the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) have fallen 3.1% and 3%, respectively. These indexes’ energy components are sensitive to oil prices.

Rise in inventory levels

On November 15, the EIA is scheduled to announce its US crude oil inventory data for last week. The five-year average rise for this period is ~2.2 MMbbls (million barrels). If the EIA’s report is in line with the five-year average rise, the inventories spread might remain at a constant level, which could be a concern for oil prices.


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