Global Economic Indicators Show Mixed Results for the Global Economy
US crude oil inventories fell by 4.2 MMbbls
According to the EIA’s (U.S. Energy Information Administration) report on Wednesday, May 25, 2016, US crude oil inventories fell by 4.2 MMbbls (million barrels) for the week ending May 20, 2016—compared to a rise of 1.3 MMbbls the previous week. However, the Market expected a fall of 2.5 MMbbls in crude oil inventories. The United States Oil Fund (USO) rose 1.8% on that day. The inventory report supports the crude oil movement.
How does a decrease in inventories support crude oil’s movement?
Crude oil (UWTI) (UCO) (BNO) prices are very sensitive to inventory reports. A fall in inventories is a welcome sign for the oversupplied market. In the past few months, we saw the oversupplied crude oil market shake investor confidence in crude oil’s movement. In recent weeks, we saw that there was a fall in crude inventories. This is a welcome sign for crude oil’s upward movement.
On May 26, crude oil prices touched $50 per barrel. Crude oil prices recovered nearly 90% from the low of $26.01 per barrel on February 11, 2016. Recently, crude oil production fell due to wildfires in Canada’s (EWC) oil field and conflict in Libya and Nigeria’s energy sector. This spurred crude oil prices.
However, the rise in crude oil prices could stimulate oil producers to revive operations. If this happens, then a supply glut position could arise in the near future. This could cause a sell-off in crude oil prices.
In the next part of this series, we’ll analyze the US gross domestic product growth in 1Q16.
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