2 Apr

What Change in the Inventory Could Boost Oil More?

WRITTEN BY Rabindra Samanta

Changes in inventory levels

On April 3, the EIA (U.S. Energy Information Administration) is scheduled to announce last week’s US crude oil inventory data. Any rise up to 7.9 MMbbls (million barrels) would keep the inventories spread in the negative territory. A fall of more than 3.7 MMbbls would help the inventories spread to expand into the negative territory. A Reuters poll suggests a fall of 1.6 MMbbls in oil inventories. If the EIA data are in line with the poll, then the inventories spread will remain unchanged.

What Change in the Inventory Could Boost Oil More?

Oil inventories and their five-year average

In the week ending March 22, US crude oil inventories were 2% lower 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 negative territory, 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 27, US crude oil May futures have risen 3.7%. On March 27–April 1, oil-weighted stocks Whiting Petroleum (WLL), California Resources (CRC), and Denbury Resources (DNR) rose 5.9%, 6.8%, and 8.1%, respectively, and outperformed their peers. The inventories spread in the red territory might have supported oil prices.

Since March 27, the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) have risen 2.2% and 2.5%, respectively. These indexes’ energy components are sensitive to oil prices.

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