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EIA Inventory Data Might Put Oil Bears at Risk

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Nov. 20 2020, Updated 3:35 p.m. ET

Changes in inventory levels

On March 6, the EIA (U.S. Energy Information Administration) is scheduled to announce last week’s US crude oil inventory data. A rise of less than ~1.7 MMbbls (million barrels) could narrow the inventories spread. A fall would be welcomed by oil bulls. A Reuters poll suggests a rise of 0.388 MMbbls in oil inventories. If the EIA data are in line with the poll, then the inventories spread will contract by one percentage point.

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Oil inventories and their five-year average

In the week ending February 22, US crude oil inventories were 3% higher than their five-year average—three percentage points less than the previous week. Oil prices and the inventories spread usually move inversely. If the inventory spread contracts more, it could boost oil prices in the coming weeks. The inventories spread is the difference between oil inventories and their five-year average.

Oil prices and energy stocks

Since the EIA released its inventory data on February 27, US crude oil April futures have fallen 0.6%. On February 27–March 4, oil-weighted stocks Denbury Resources (DNR), Oasis Petroleum (OAS), and Callon Petroleum (CPE) have fallen 4.9%, 4.2%, and 0.9%, respectively, and underperformed their peers. The contraction in the inventories spread might have limited the downside in oil prices.

Since February 27, the S&P 500 (SPY) was unchanged, while the Dow Jones Industrial Average (DIA) fallen 0.6%. These indexes’ energy components are sensitive to oil prices.

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