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EIA Inventory Data: Oil Could Decline in the Next Week

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On October 17, the EIA released its inventory data. Based on the report, US crude oil inventories rose by 9.3 MMbbls (million barrels). This is far above the Reuters poll for a rise of 2.88 MMbbls for the week ended October 11.

With this rise, the inventories spread stood at 2%. In the past three weeks, the inventories spread was unchanged at 0%. US crude oil inventories and their five-year average difference is called the inventories spread.

An inventories spread in positive territory might not help oil prices rise. For the week ended September 13, the inventories spread was -2%. In the week ended September 20, inventories were equal to their five-year average.

Since September 18, WTI crude oil active futures have fallen 8.2%. On September 18, the EIA reported inventory data for the week ended September 13.

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Energy stocks

Notably, the downturn in oil prices also impacted Chesapeake Energy (CHK). CHK’s stock price lost 17.6% in this period. Oil prices and the inventories spread are inversely related. The United States Oil Fund LP (USO) has fallen 7.9% since September 18. USO is aligned with WTI crude oil futures.

This week, the inventories spread could fall into negative territory if the EIA reports a fall greater than 7.4 MMbbls on October 23. Moreover, any rise in this inventory level could expand the inventories spread into positive territory. In 2018, for this time of the year, US crude oil inventories rose by 6.3 MMbbls. 

EIA exports

US crude oil exports usually lag behind the Brent-WTI spread. On September 30, this spread rose to $6.71, the highest since July 29.

In the week ended October 11, US crude oil exports rose to 3.4 MMbpd (million barrels per day), the highest since mid-June. This information is based on EIA data. However, the Brent-WTI spread is below $6 this month, which could drag US oil exports in the coming weeks.

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Notably, US energy exports pose a significant threat to oil’s upside. In 2019, on average, US oil exports were 46.3% higher than in 2018. On a year-to-date basis, US oil exports have risen 1.2 MMbpd. This figure is the same as the OPEC+ production cut. Any fall in US energy exports could support oil prices.

Moving averages and price target

On October 16, US crude oil active futures rose 1% and settled at $53.36 per barrel. On the same day, US crude oil active futures were 2.7%, 3.5%, 4.3%, and 6.1%, respectively, below their 20-, 50-, 100-, and 200-day moving averages. WTI crude oil futures have been below these moving averages since late September. During that period, the inventories spread left negative territory.

This trend indicates sustained bearishness in oil prices. In addition, the difference between the 50-day moving average and the 200-day moving average expanded to -2.5%. The 50-day moving average is below the 200-day moving average, resulting in another bearish indicator for oil prices.

Between October 17 and October 23, active crude oil futures could close between $51.18 and $55.54 per barrel. This price range depends on oil’s implied volatility of 35% in the last trading session. The model is based on a confidence level of 68% plus a normal distribution of prices. We might see WTI crude oil near the lower limit of our price forecast due to bearish inventory data.

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