Oil Inventories: What Can Investors Expect?



Oil inventories and their five-year average

In the week ending on May 24, US crude oil inventories were 5% higher than their five-year average—compared to the surplus of 4% 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.

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Oil prices and energy stocks

Since the EIA (U.S. Energy Information Administration) released its inventory data on May 30, US crude oil July futures have fallen 5.9%. On May 30–June 3, oil-weighted stocks Hess (HES), Occidental Petroleum (OXY), and Diamondback Energy (FANG) fell 5.3%, 5%, and 2.2%, respectively, and were among the underperformers.

Since May 30, the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) have fallen 1.6% and 1.4%, respectively. These indexes’ energy components are sensitive to oil prices.

Changes in inventory levels

On June 5, the EIA is scheduled to announce last week’s US crude oil inventory data. A fall of equal to or more than 5.3 MMbbls (million barrels) could help the inventories spread contract. Analysts expect a fall of 0.2 MMbbls. If the EIA reports a figure that’s in line with analysts’ expectations, the inventories spread could rise by one percentage point.


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