the EIA

Each week the Energy Information Administration (EIA), an independent statistical agency in the Energy Department that collects, analyzes and publishes extensive amounts of energy data, releases a report on US inventories of crude oil.

background

Over the past quarter-century, the typical US crude oil inventory stock level has been around 325 million barrels (excluding the Strategic Petroleum Reserve of 700- million barrels).  The figure shows some seasonal variation in most years, peaking in late Spring – early Summer and reaching a low point in late Winter.  But these swings have usually been relatively mild.  Before the current period of oversupply, for example, the weekly figure had never come in above 375 million barrels.

Between August 2014 and May 2016, however, the inventory number rose steadily from 331 million barrels to 510 million.  Since then, the figure has been gradually declining.  That, and talk of OPEC members placing a ceiling on the cartel’s overall production, have created the belief among speculators on Wall Street that the worst of the global crude oil oversupply might be behind us.

…until now.

the November 2nd report

The November 2nd EIA report shows crude oil inventories leaping by a huge 14.4 million barrels,to a total of 483 million.  While even the 468 million barrel inventory figure of a week ago is way above normal, the shock  to financial markets is that the change–typically one or two million barrels in either direction in any given week–is so big and that it is in the direction of more oversupply.

Even though one data point doesn’t make a trend, this one appears to have let a lot of air out of the balloon of crude oil bulls.

I’m still on the sidelines.  I continue to think we won’t the first clear signal of the state of the crude market until the seasonally slack period in late January – early February.