Oil prices yesterday closed below the $40 per barrel mark and remain there in today’s early trading. Prices are under pressure due to market concerns about a glut in the crude oil market and an overhang of oil products such as gasoline. Some analysts such as Francisco Blanch, head of global commodity research at Bank of America Merrill Lynch, believe this latest oil price downturn is due to seasonal factors. He said in an interview on Bloomberg yesterday that he expects oil prices to rebound to $50 per barrel later this year. (See also, What Determines Oil Prices?)
Later today the U.S. Department of Energy (DOE) will release its weekly crude oil inventory report for the week ended July 30. A survey by The Wall Street Journal found analysts forecasting a 900,000 barrels decline in crude inventories and a 200,000 barrel drop in gasoline stocks, according to MarketWatch.com. The chart below from estimize.com shows historical weekly inventory data versus amateur analyst expectations. The data shows that amateur investors also expect a drawdown in crude oil inventories in today’s data.
The American Petroleum Institute (API), an industry trade group, said yesterday that U.S. crude oil inventories fell by 1.3 million barrels in the week ended July 30. Traders and analysts often watch this data for signs of what to expect from the U.S. government’s official figures released a day later. The two data sets do not always correlate, however, so a drawdown in the API inventory data is no guarantee that EIA data will also indicate a reduction in crude oil inventories.
The Bottom Line
A build up in crude oil inventories in today’s official figures would signal decreasing demand from refiners. This would indicate that the large build-up of oil products like gasoline and fuel oil may be nearing a top. Conversely, a crude drawdown would signal that refiners are still producing at elevated levels and the inventory overhang in oil products is set to continue. Ironically, this could also place downward pressure on oil prices.
Disclaimer: Gary Ashton is an oil and gas financial consultant who writes for Investopedia. The observations he makes are his own and are not intended as investment advice.