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EIA Inventory Data Might Concern Oil Bulls

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Oil inventories and their five-year average

In the week ending January 4, US crude oil inventories were 8% higher than their five-year average—the same as the previous week. Oil prices and the inventories spread usually move inversely.

If the inventories spread expands more into the positive territory, it could drag oil prices down in the coming weeks. The inventories spread is the difference between oil inventories and their five-year average.

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Oil prices, energy stocks, and the inventories spread

Since the latest EIA (U.S. Energy Information Administration) data were released on January 9, US crude oil February futures have fallen 3.5%. On January 9–14, oil-weighted stocks Whiting Petroleum (WLL), Callon Petroleum (CPE), and Denbury Resources (DNR) fell 2.7%, 2.9%, and 3.6%, respectively, and underperformed their peers.

Since January 9, the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) have returned -0.1% and 0.1%, respectively. These indexes’ energy components are sensitive to oil prices.

Fall in inventory levels

On January 16, the EIA is scheduled to announce its US crude oil inventory data for last week. A fall of more than ~6.9 MMbbls (million barrels) for the week ending on January 11 would help contract the inventories spread. However, a Reuters poll suggested a fall of 1.5 MMbbls in crude oil inventories. If the EIA data were in-line with Reuters’ poll, then the inventories spread would remain at a constant level, which might concern oil prices.

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