Crude Oil Inventory Fell: What Should Investors Watch for Next?
Inventory fell from more than an 80-year high
The EIA (U.S. Energy Information Administration) reported that commercial crude oil (UCO) (USO) (BNO) inventories fell by 4.9 MMbbls (million barrels) and stood at 529.98 MMbbls for the week ending April 1, 2016. However, analysts were expecting the inventory to rise by 3.1 MMbbls.
What caused the inventory to fall?
The input to refineries stood at 16.1 MMbpd (million barrels per day) for the week ending on April 1, 2016—a rise of 1.3 MMbpd compared to the prior week. Refineries operated with a capacity utilization of 89.8% for the week ending on April 1, 2016—compared to 89.2% in the previous week. Motor gasoline production rose by 9,000 barrels for the week ending on April 1, 2016—compared to the previous week. The rise in refineries’ capacity utilization clearly outlines the anticipated higher demand for gasoline in the summer season. The net imports of crude also fell by 1.9 MMbpd for the week ending on April 1, 2016—compared to the previous week. The rise in refining activity was primarily responsible for the fall in the crude oil inventory. The above chart shows the refining activity.
How inventory impacts key ETFs
The fall in the inventory is a positive sign for crude oil. The inventory fell from more than an 80-year high. A rise in the inventory level that’s less than the forecast has always led crude higher. The SPDR Oil and Gas Exploration ETF (XOP) highly correlates with crude oil. On April 6, XOP rose 3.4%. Read Which Key ETFs Can Be Impacted by the Crude Downturn? to learn more about the correlation of energy ETFs with crude oil.
Oil-weighted stock Northern Oil & Gas (NOG), Denbury Resources (DNR), and Kosmos Energy (KOS) rose 6.70%, 11%, and 2.30%, respectively, on April 6, 2016. They operate with crude oil production mixes of 87%, 100%, and 94.9%, respectively.
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