Higher Inventories Might Support Oil Prices

Changes in inventory levels

On March 13, the EIA (U.S. Energy Information Administration) is scheduled to announce last week’s US crude oil inventory data. A rise of less than ~3.23 MMbbls (million barrels) could narrow the inventories spread. A fall would be welcomed by oil bulls. A Reuters poll suggests a rise of 2.861 MMbbls in oil inventories. If the EIA data are in line with the poll, then the inventories spread will contract by one percentage point.

Higher Inventories Might Support Oil Prices

Oil inventories and their five-year average

In the week ending March 1, US crude oil inventories were 4% 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 inventory spread contracts, 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 March 6, US crude oil April futures have risen 1%. On March 6–11, oil-weighted stocks Hess (HES), California Resources (CRC), and Oasis Petroleum (OAS) have fallen 1.4%, 1.2%, and 1.1%, respectively, and outperformed their peers. The remaining oil-weighted stocks ended in the red. Despite the expansion in the inventories spread, a reduction in the global oil supply might have supported oil prices.

Since March 6, the S&P 500 (SPY) rose 0.4%, while the Dow Jones Industrial Average (DIA) fell 0.1%. These indexes’ energy components are sensitive to oil prices.