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EIA Inventory Data Seems to Bring More Trouble for Oil

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Oil inventories and their five-year average

In the week ending on May 31, US crude oil inventories were 6% higher than their five-year average—compared to the surplus of 5% to the five-year average they achieved the previous week.

Oil prices and the inventories spread usually move inversely. If the inventories spread expands more into the positive territory, oil prices could see trouble 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 (U.S. Energy Information Administration) released its inventory data on June 5, US crude oil July futures have risen 3.1%. However, on June 5, US crude oil prices fell to the lowest closing level since January 14. Short covering and a rise in the broader market might have supported oil prices. Since June 5, the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) have risen 2.1% and 2%, respectively.

On June 5–10, oil-weighted stocks California Resources (CRC), Hess (HES), and EOG Resources (EOG) rose 6.6%, 5.5%, and 3.9%, respectively. They were among the outperformers. California Resources, Hess, and EOG Resources operate with a production mix of 74.4%, 68.2%, and 71.8% in commodities linked to oil prices. The change in the inventories spread would be important for these energy stocks.

Changes in inventory levels

On June 12, the EIA is scheduled to announce last week’s US crude oil inventory data. A fall of equal to or more than 6.3 MMbbls (million barrels) could help the inventories spread contract. A Reuters poll suggests a fall of 0.47 MMbbls. If the EIA reports a figure that’s in line with the poll, the inventories spread could rise by one percentage point.

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