The American Petroleum Institute (or API) expects to release its inventory data on August 20. Last year at this time, API reported a fall of 5.2 MMbbls (million barrels) in oil inventories. If API reports a fall in crude oil inventories, we could see an additional upside in oil. Last week, the American Petroleum Institute reported a buildup of 3.68 MMbbls.
Will EIA follow the API inventory trend?
Except for a few instances, the EIA inventory data has followed the API inventory trend in the last three months. On August 14, the EIA reported a buildup of 1.6 MMbbls in crude oil inventories for the week ended August 9. With this rise, the inventories spread, or the difference between crude oil inventories and their five-year average, rose by 1.0 percentage point, a bearish development for oil prices. Often, inventories spread and oil prices move inversely.
A fall that’s equal to or greater than 6.8 MMbbls in the EIA data usually helps the inventories spread contract. If the EIA data reports any rise or fall less than or equal to 2.2 MMbbls, then the inventories spread would rise—and we might see a dip in US crude oil prices going forward.
Apart from the equity index, energy stocks such as Chesapeake Energy (CHK) and ConocoPhillips (COP) also react to inventory data. CHK and COP operate with respective production mixes of 31.7% and 65.4% in oil price–linked commodities. CHK has a higher sensitivity to oil prices.
Technical indicator and price forecast
On August 16, US crude oil prices traded 1%, 2%, 6.6%, and 2.8%, respectively, below their 20-, 50-, 100-, and 200- day moving averages. Prices below these key moving averages indicate a bearish trend. However, the negative difference between the 50- and 200-day moving averages contracted in the past few trading sessions and stood at 0.8%.
If the 50-day moving average moves above the 200-day moving average, we could see an increase in the bullish bet on oil prices. Technically, when a shorter-term moving average moves above a longer-term moving average, it is called the “golden cross.” An additional upside in the asset’s price typically follows this occurrence.
Based on the implied volatility of 32.3%, US crude oil October futures could close between $52.74 and $56.88 per barrel until August 23. The normal distribution of prices underpins this expectation, with a probability of 68%.