Well, the rally in crude oil was fun while it lasted. As the S&P 500 Energy sector broke down to a new 52-week low today, the price of crude oil hasn’t held up much better. After rallying more than 40% from mid-March through early May, crude oil prices have dropped more than 20% from their intraday high of $64.12 on May 6th. While crude oil is now back in bear market territory on an intraday basis, using closing prices (our preferred method) it won’t reach the 20% threshold required for a bear market until it closes at or below $49.94.
While many factors (Iran talks, increased risk aversion, worries over global economic growth) are contributing to oil’s decline, inventory levels aren’t helping. In this week’s inventory report from the Department of Energy (DoE), crude oil stocks rose by 384K which was higher than consensus expectations of no change in stockpiles. Below we have updated our chart of crude oil inventories in 2015 relative to the average of the last ten years and going back to 1983. While this week’s build in stockpiles was relatively small, crude oil inventories are currently more than 37% (129 million barrels) above average, and have also risen in the last two weeks at a time of year when they are generally declining.