EIA’s Inventory Data Might Hurdle Oil’s Rise

Oil inventories and their five-year average

In the week ending on November 23, US crude oil inventories were 7% 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.

EIA’s Inventory Data Might Hurdle Oil’s Rise

Oil prices, energy stocks, and the inventories spread

Since the EIA’s (U.S. Energy Information Administration) data were released on November 28, US crude oil January futures have risen 5.9%. A possible OPEC and non-OPEC oil producer production cut deal and the trade war truce might have supported oil prices during this period. On November 28–December 3, oil-weighted stocks Denbury Resources (DNR), Whiting Petroleum (WLL), and WPX Energy (WPX) rose 6.8%, 7.5%, and 8.7%, respectively, and outperformed their peers.

Since November 28, the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) have risen 1.7% and 1.8%, respectively. These indexes’ energy components are sensitive to oil prices.

Fall in inventory levels

On December 6, the EIA is scheduled to announce its US crude oil inventory data for last week. A Reuters poll indicates a fall of ~2.3 MMbbls (million barrels) for the week ending November 30. If the EIA’s report is in line with the Reuters poll, the inventories spread might remain at a constant level, which could be a concern for the recent rise in US crude oil prices.