Falling Inventories Didn’t Help Oil’s Rise



Oil inventories and their five-year average

In the week ending December 28, US crude oil inventories were 8% higher than their five-year average—one percentage point more than 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 4, US crude oil February futures have risen 1.2%. Last week, China announced a dialogue with the US about the trade war, which might have supported oil prices. On January 4–7, oil-weighted stocks WPX Energy (WPX), Whiting Petroleum (WLL), and Callon Petroleum (CPE) rose 6.1%, 7.6%, and 7.8%, respectively, and outperformed their peers.

Since January 4, the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) have risen 0.7% and 0.4%, respectively. These indexes’ energy components are sensitive to oil prices.

Fall in inventory levels

On January 9, the EIA is scheduled to announce its US crude oil inventory data for last week. A fall of more than ~7.2 MMbbls (million barrels) for the week ending on January 4 would help contract the inventories spread. However, a Reuters poll suggested a fall of 3.3 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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