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API Inventory Data: Eighth Consecutive Weekly Draw?

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Aug. 6 2019, Updated 12:07 p.m. ET

On Tuesday, the API (American Petroleum Institute) is scheduled to report its weekly inventory data for the week ending August 2. In the previous seven weeks, the API reported fall in US crude oil inventories. The API data matches the trend in the EIA (U.S. Energy Information Administration) inventory data. In the last few weeks, the EIA and API’s crude oil stocks fell more than the estimates in a Reuters poll. For the week ending August 2, the Reuters poll expected a draw of 3.43 MMbbls (million barrels) in the API’s crude oil inventories report.

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Inventories helping oil overcome equity weakness

The decline in US crude oil inventories is the only thing that helped oil prices fight the trade war. On August 1, President Trump imposed tariffs on an additional $300 billion worth of Chinese goods. The tariffs will be effective in September. As a result, China devalued its currency. The US accused China of devaluing the yuan to mitigate the impact of rising tariffs. Notably, equity market fell worldwide. The S&P 500 Index (SPY) fell 3% in the last trading session, while oil only fell 1.7%. Usually, the magnitude of the fall in the S&P 500 could have a devastating impact on oil prices.

For energy stocks like Chesapeake Energy (CHK), the fall in the S&P 500 Index was more important than the decline in oil prices. On Monday, Chesapeake Energy’s stock prices fell nearly 5%. Historically, Chesapeake Energy had a higher correlation with US crude oil prices.

EIA inventory and US crude oil

On Wednesday, the EIA is scheduled to release its oil inventory report for last week. A Reuters poll estimates a decline of 3.31 MMbbls. If the EIA’s report is in line with the Reuters poll, then the US crude oil inventories spread will remain unchanged. The inventories spread represents the difference between US crude oil inventories and their five-year average.

For any possibility of a rise in oil prices this week, the EIA must report a decline of at least 10.1 MMbbls. A fall of this magnitude will help the inventories spread move into the negative zone. The movement would be a positive development for oil prices in the current crisis. The trend in the Brent-WTI spread suggests a possible decline in US crude oil exports. A fall in the exports could lead to rising inventories.

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