WTI Rises on Supply Numbers, but Shrugs Off Crude Inventory Build
US crude oil inventories
In its weekly “Petroleum Status Report” released on Thursday, September 10, the EIA (U.S. Energy Information Administration) reported a rise of 2.6 MMbbls (million barrels) in crude oil inventories for the week ending September 4. Analysts were expecting a rise of just 900,000 barrels.
What does this mean?
A more-than-expected inventory rise is usually bearish for crude oil prices. This would be negative for major oil producers like Hess (HES), Cimarex Energy (XEC), and Anadarko Petroleum (APC). All of these companies are part of the Vanguard Energy ETF (VDE). They account for ~4% of the fund. Also, lower prices may discourage these upstream companies from producing more crude oil. This would mean that lower volumes are transmitted by MLPs like Plains All American Pipeline Partners (PAA), which would hurt revenues for these MLPs.
However, on September 10, WTI (West Texas Intermediate) crude oil prices settled ~4% higher than the previous day at $45.92 per barrel. In this series, we’ll discuss what could have caused this counterintuitive move.
Background on crude oil inventories
After touching a peak of 490.9 MMbbls in the week ending April 24, inventories started turning downward for the first time in four months in the week ending May 1, as you can see in the above graph.
Since May this year, inventories had mostly been declining as refiners operated at high levels during the summer driving season. However, recently, inventories have started rising as refiners enter into maintenance season. This pattern is consistent with previous years as well. Inventories have increased two weeks in a row, and now stand at ~458 MMbbls.
Importance of crude oil and inventories
Crude oil is one of the most important energy sources for the world. Its refined products have several applications ranging from powering cars to building roads. Crude oil prices are important not only for individuals, but also for global economies and industries. Supply and demand trends determine crude oil price trends.
Browse this series on Market Realist: